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The report noted that regulatory approaches to stablecoins share similarities in key requirements but differ in response to various stablecoin design features and perceived risks.
The Financial Stability Institute (FSI) has called for a global unified regulatory approach to stablecoins, warning that inconsistencies in supervision could threaten financial stability. In a report published on April 9, 2024, the FSI emphasized the need for countries worldwide to adopt the same regulation approach to issuing and using stablecoins.
Stablecoin Adoption
The FSI was established by the Bank for International Settlements and the Basel Committee on Banking Supervision to contribute to international discussions on various policy issues.
According to its latest report on stablecoin regulations, national and international financial regulators are responding positively to the adoption of stablecoins because they can maintain stability in the face of market turmoil.
Despite the growing acceptance of the asset class, the FSI report pointed out that different jurisdictions have varying definitions and categorizations for stablecoins, which could pose risks to financial stability.
The report also noted that countries around the world are implementing comprehensive suites of measures aimed at mitigating the risks associated with the issuance of digital assets designed to be pegged 1:1 to reserve assets such as the US dollar.
Disparities in Stablecoin Regulation
While these measures touched upon critical areas such as licensing, reserve asset management, redemption rights, consumer protection, and anti-money laundering (AML)/countering the financing of terrorism (CFT) compliance, many jurisdictions have different views about stablecoins and, therefore, have established rules according to their understanding of the virtual assets.
The FSI disclosed that out of the nations around the world that have introduced comprehensive legislation for the regulation of the asset class, some jurisdictions have robust regulatory frameworks for stablecoins, while others still have unregulated or lightly regulated environments.
According to the report authored by FSI Deputy Chair Juan Carlos Crisanto and Senior Advisors Johannes Ehrentraud and Denise Garcia Ocampo, this regulatory disparity could lead to challenges in the global financial system.
Need for Consistent Regulation to Address Stablecoin Challenges
The report also noted that regulatory approaches to stablecoins share similarities in key requirements but differ in response to various stablecoin design features and perceived risks.
Furthermore, the report revealed that there are discrepancies in requirements for disclosing reserve assets held by stablecoin issuers to maintain the digital asset’s value against its reference currency.
The FSI believes that this inconsistency in stablecoin regulation could hinder the integration of the financial system and pose significant risks to financial stability. They also opined that a consistent regulatory framework is all that is needed to prevent the risks associated with such digital assets.
“A consistent regulatory framework, as well as its global implementation, is essential to address stablecoins’ risks, prevent regulatory arbitrage and ensure a level playing field in the digital asset ecosystem,” the FSI report said.
Countries Exploring Stablecoin Regulation
Meanwhile, countries around the globe have been exploring ways to regulate stablecoins. The United Kingdom, for example, recognized stablecoins as a means of payment in 2023, while the European Union introduced the Markets in Crypto Assets regulation (MiCA) to supervise issuers and service providers of stablecoins.
On the other hand, Japan has also started regulating stablecoins, and the United States is considering a stablecoin bill proposed last year.
