FSB Said Many Stablecoins Will Not Fulfill Future Regulatory Criteria

The Financial Stability Board has warned that new rules for risk management would make it hard for many stablecoins that are already in use.

In a letter to G20 finance ministers, FSB chair Klaas Knot said that the events of the past year, like the collapse of FTX, have shown how volatile and structurally weak crypto-assets are.

Knot says, to stress how important regulatory oversight is for the sector:

“We have now seen first-hand that the failure of a key intermediary in the crypto-asset ecosystem can quickly transmit risks to other parts of that ecosystem. And, if linkages to traditional finance grow, risks from crypto-asset markets could spill over onto the broader financial system.”

Knot says that stablecoins are seen as a good way to spread financial shocks that could make threats to financial stability worse.

The G20 gave the FSB the job of coordinating the creation of a full regulatory framework for crypto-assets, which is expected to be done by the end of this year.

The recommendations for stablecoins include advice on how to improve governance frameworks, make redemption rights clearer and stronger, and make sure that effective stabilization mechanisms are kept in place, among other changes.

Knot concludes:

“The FSB’s work concludes that many existing stablecoins would not currently meet these high-level recommendations, nor would they meet the international standards and supplementary, more detailed BIS Committee on Payments and Market Infrastructures-International Organization of Securities Commissions guidance.”

The Financial Stability Board said last week that it was also stepping up its investigation into the unclear world of decentralized finance (DeFi), because it was once again worried that risks could spread to traditional finance.

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