The G20’s financial regulatory arm, the Financial Stability Board (FSB), published a consultative document on global stablecoins^[1] on 14 April 2020^[2]. This consultation is in line with the work initiated in 2019 following the launch of the Libra initiative by Facebook and should lead to the submission of a final report to the G20, currently under Saudi chairmanship, in the autumn of 2020. The publication of this document, announced several months ago, has not been delayed by the health crisis that is shaking all the world’s economies: this is because it crystallises the need to accelerate the digitisation of financial services, which is already central in post-crisis economic and financial strategies.

The consultative document focuses on the regulatory implications of the development of global stablecoins, but also covers stablecoins more broadly. The FSB takes care to clarify what these concepts mean, without confining them to a single pre-existing legal category^[3]. For the FSB, stablecoins are a type of crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets. Global stablecoins are a particular type of stablecoin, set apart by their potential reach and adoption across multiple jurisdictions and the potential to achieve substantial volume.

One of the major contributions of the report is the FSB’s analysis of how these new instruments operate, currently mainly used for payment purposes or as a store of value. A stablecoin arrangement presupposes the establishment of (i) a mechanism for issuing, maintaining the value of and redeeming the stablecoin; (ii) a mechanism for transferring the stablecoin; and (iii) a network of users who can store or exchange these stablecoins. When used for payment purposes, the FSB considers that stablecoins are likely to represent the same type of risk as traditional payment systems or financial services. It is this premise that structures the FSB’s reasoning and its proposals for regulators to consider in this consultative document.

The FSB’s action is governed by the principle of “same business, same risks, same rules”^[4]. A survey of FSB member jurisdictions revealed that, in the absence of a specific regime applicable to stablecoin projects and global stablecoins, supervisors have tended to apply existing rules (e.g. on payments or financial services) when it was found that these projects were actually aimed at providing payment and/or financial services. However, the work of the FSB identifies loopholes in national legislation (due, for instance, to the inadequacy of existing legal categories in relation to the specifics of stablecoins and global stablecoins) and differences between the various applicable national regimes, leading to potential regulatory arbitrage between countries.

For this reason, the FSB makes a series of 10 recommendations to its member jurisdictions to assist regulators in developing a regulatory and supervisory framework suited to the specifics of the global stablecoins. These instruments, considering their potentially massive adoption by individuals in several jurisdictions, pose new challenges both in terms of financial stability and monetary sovereignty, and in terms of international cooperation. The FSB’s draft recommendations include the following:

• the need for national supervisors to implement the regulatory tools and powers at their disposal to effectively regulate and supervise global stablecoin projects (high-level recommendation 1);
• the requirement for national supervisors to regulate these projects on a functional basis and in a manner proportionate to their risk; to ensure that adequate governance arrangements are put in place, as well as robust procedures for anti-money laundering and terrorist financing, cyber security, continuity and recovery planning (high-level recommendations 2, 4, 5, 7); and
• the development of inter-jurisdictional and inter-sectoral cooperation arrangements to ensure effective supervision of global stablecoin initiatives (high-level recommendation 3).

This document is open to public consultation until 15 July 2020.

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This document is a decisive step in the development of the G20 regulatory strategy for financial innovation which, in the current context, must necessarily be rethought to best support the recovery.

The importance of stablecoins for the international financial sector stems from the role they can play, particularly in payments and in the processing of cash flows, within infrastructures based on blockchain protocols – as evidenced by the development of numerous projects led by financial institutions, new entrants, bank consortia and other market initiatives.

For private and public players developing stablecoins or global stablecoin projects, the FSB’s initiative is a real strategic challenge and an opportunity to contribute to future regulatory developments, and thus marks the recognition, at the highest political level, of their innovative economic projects.

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[1] Global stablecoins (GSCs) designate a set of cryptoassets with a relatively stable value and with worldwide scope
[2] FSB, Addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements, Consultative document (hereinafter the “Consultation“), 14 April 2020.
[3] Consultative document, p.7 (“The term stablecoin does not necessarily denote a distinct legal or regulatory classification”).
[4] Consultative document, p.15.

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