G20’s Recommendations for Regulating ‘Global Stablecoins’

The Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 (G20) economies, set out 10 recommendations on Tuesday (Apr 14) for a common, international approach to regulating stablecoins. The regulatory watchdog said that “so-called global stablecoins” has the potential to improve financial services efficiency but may also pose a risk for financial stability.

The FSB made these ten “high-level” recommendations, published in a 67-page report, which included the need to comply to all relevant regulatory standards and fix threats to financial stability before beginning operations, and to develop frameworks and products that could adjust as required to new regulatory requirements.

Furthermore, the FSB also urged regulators to ensure that GSC’s should have appropriate governance processes, comprehensive data structures, contingency plans, and accountability should have a solid legal basis, and should be transparent, open and disclosed to users and other interested parties.

effective cross-border cooperation, coordination, and information sharing amongst the relevant authorities to ensure sufficient cross-border supervision and oversight of the stablecoin arrangement.

The FSB also said that cross-border cooperation should be in place to prevent a stablecoin from playing off one jurisdiction against another and that stablecoin companies have to handle risks efficiently, be operationally efficient, provide cyber-attack defenses and stop money laundering and terrorist financing schemes.

“Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by global stablecoins,” the report said.

​​​​​​​​​​​​Ten “High-Level” Recommendations (SourceFSB)

1. “Authorities should have and utilize the necessary powers and tools, and adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement and its multi-functional activities, and enforce relevant laws and regulations effectively.
2. Authorities should apply regulatory requirements to GSC arrangements on a functional basis and proportionate to their risks.
3. Authorities should ensure that there is comprehensive regulation, supervision and oversight of the GSC arrangement across borders and sectors. Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication and consultation in order to support each other in fulfilling their respective mandates and to facilitate comprehensive regulation, supervision, and oversight of a GSC arrangement across borders and sectors.
4. Authorities should ensure that GSC arrangements have in place a comprehensive governance framework with a clear allocation of accountability for the functions and activities within the GSC arrangement.
5. Authorities should ensure that GSC arrangements have effective risk management frameworks in place especially with regard to reserve management, operational resiliency, cybersecurity safeguards and AML/CFT measures, as well as ‘fit and proper’ requirements.
6. Authorities should ensure that GSC arrangements have in place robust systems for safeguarding, collecting, storing and managing data.
7. Authorities should ensure that GSC arrangements have appropriate recovery and resolution plans.
8. Authorities should ensure that GSC arrangements provide to users and relevant stakeholders comprehensive and transparent information necessary to understand the functioning of the GSC arrangement, including with respect to its stabilisation mechanism.
9. Authorities should ensure that GSC arrangements provide legal clarity to users on the nature and enforceability of any redemption rights and the process for redemption, where applicable.
10. Authorities should ensure that GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing any operations in that jurisdiction, and construct systems and products that can adapt to new regulatory requirements as necessary.”

The G20 is made up of 19 countries and the European Union. The 19 countries are Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, the Russian Federation, Saudi Arabia, South Africa, South Korea, Turkey, the UK and The US.