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IOSCO Publishes Report on Evaluation of Global Stablecoins from Regulatory Perspective

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Jayashree Ingle Follow

INDIA

Mar, 27 2020

Mar, 27 2020

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The International Organization of Securities Commissions (IOSCO) has released the latest report exploring the implications of global stablecoins for security regulators.

In its latest report, the International Organization of Securities Commissions (IOSCO) stated that global stablecoins might be subject to securities law.

IOSCO’s 31 pages report which is titled ‘Global Stablecoin Initiatives’ has evaluated the regulatory issues regarding stable coins in global markets. Though it has not mentioned any particular stablecoin in the report.

The report explores the IOSCO’s principles and standards that could be applied to the arrangements. As part of the initiative to evaluate the stablecoin proposals and risks involved in them, IOSCO’s fintech network has prepared the report in context of a securities market regulator.

The International Organization of Securities Commissions (IOSCO) - Report Specifics 

The report describes stablecoins as a type of crypto-asset or assets that might be considered as securities in certain jurisdictions. They do not have a legal fixed definition and are marketed as their price volatility is low as compared to other crypto assets.

Stablecoin initiative further aims to create a store of value and a means of exchange that is globally acceptable, efficient and available. While stablecoins seek to reflect a set of characteristics (price stability), they do not form a self-contained type of asset.

The stable coin could be used for payments and banking activities and if it is massively adopted, it could become systematically important. 

The report further says that stablecoins can be backed or pegged by particular assets, can be controlled algorithmically, or their value can float freely. However, there are several stable coins that are not backed by any assets.  

The report also says that coins can be classified under several categories as they have a number of features. Though they are called stablecoins, they are neither stable nor coins.

Existing stable coins have cross-border and cross-agency structure and thus IOSCO is trying to associate with international regulatory bodies and Standard setters including the Financial Stability Board (FSB).

Financial Stability Board (FSB) and IOSCO will work together to evaluate the stablecoins proposals and the risk involved in them. FSB is currently monitoring the regulatory issues regarding the global stable coin arrangements, finalized by the G20 in June 2019, a report on which will be published in April 2020.

As per IOSCO, if the stable coin project is grown to become a Financial Market Infrastructure (FMI), it would be expected to comply with the principles for FMIs (PFMIs) from the bank of International Settlement.

Mentioning the challenges in the stable coin projects, the report states, “It may be challenging for some systematically important stable coin arrangements to comply with the high standards of the PFMI, particularly for those systematically important arrangements that are partially or highly decentralized,”

This could be an obstacle in the path of stablecoin projects which considers decentralization as their core feature. IOSCO also mentions that the more the decentralized the arrangements are, the higher the challenges might be.


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Jayashree Ingle

CBW - External Analyst

INDIA

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