Many Stablecoins May Not Meet the Standards of Crypto Asset Regulations: FBS

The Financial Stability Board (FSB) has revealed that many stablecoins will not meet the standards stipulated in its recommendations for crypto asset regulations that will be released later this year. The regulator noted that the recommendations would be aimed at maintaining effective “stabilization” mechanisms and strengthening redemption rights.

The FSB is a global organization that oversees and provides guidance on the stability and resilience of the international financial system. The watchdog was created by the G20 countries as a replacement for the Financial Stability Forum in 2009 after the 2008 financial crisis.

FSB to Release Stablecoin Recommendations

According to an official document published Monday, the FSB believes tighter regulations are crucial to the crypto sector, considering the number of high-profile scandals that shook the industry last year.

“The events of the past year, such as the collapse of FTX, have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets. 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,” the financial watchdog said.

The regulatory effort aligns with an announcement made last year about the FSB’s intentions to set out a timeline for global crypto regulators in 2023. The recommendations aim to curtail the effect of crypto asset implosion on the broader financial system.

A core aspect of the regulatory framework is focused on stablecoins. And the Terra-Luna $40 billion ecosystem collapse in May has already dented the reputation of such assets.

The FSB now seeks to strengthen global stablecoin governance frameworks, as such assets have characteristics that could worsen threats to financial stability.

Many Stablecoins May Not Meet the FSB’s Standards

Although the recommendations are yet to be released, the FSB has already concluded that many existing stablecoins would not meet the stipulated “high-level” standards, let alone detailed rules to be set by sectoral bodies.

“Importantly, 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 Commission’s guidance,” the FSB added.

Furthermore, the FSB intends to publish a joint paper with the International Monetary Fund (IMF) to synthesize the outcome of policy findings on crypto assets.

Upon completion of the work, the FSB will coordinate the regulation of cryptocurrencies on the principle of “same activity, same risk, same regulation.”