The Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) today published a joint report proposing that international standards for payment, clearing and settlement systems should be applied to “systemically important stablecoin arrangements.”
Fast facts
- The BIS, CPMI and IOSCO report comes amid the rise of stablecoins such as Tether (USDT) and Circle’s USD Coin (USDC) and increasing regulatory scrutiny over the risks that stablecoins can pose to the financial system. According to CoinGecko data, the market cap for stablecoins is currently over US$130 billion.
- Multiple stablecoins have already come under fire this year. Tether is currently banned in New York after its parent company, Bitfinex reached a settlement with state Attorney General Letiticia James for falsifying statements regarding Tether’s reserves. Circle, which was also criticized in the past for not holding sufficient cash reserves, disclosed this week in a regulatory filing that it was under investigation by the U.S. Securities and Exchange Commission. Iron Finance, an algorithmic stablecoin, collapsed in one day this past June, and investors lost billions.
- The report defines a stablecoin arrangement (SA) as something that “combines a range of functions to provide an instrument that purports to be used as a means of payment and/or store of value” and lays out considerations — including governance, risk management, settlement finality, liquidity for money settlements — on whether a stablecoin arrangment is determined to be systemically important.
- “The payments landscape has undergone rapid transformation in recent years and continues to evolve at pace. This is happening at the same time as financial innovation offers the prospect of new payment services and greater competition in payments but also potential risks to the financial system,” said said Sir Jon Cunliffe, chair of the CPMI, in a statement. “This consultation document is part of an ongoing commitment by the international regulatory community to ensure the principle of ‘same risk, same regulation’ to identify potential risks and to help develop appropriate oversight to safeguard financial stability.”
- According to the BIS, each jurisdiction retains the prerogative to determine its own regulations and and whether to allow stablecoin activity. If it does so, the “Principles for Financial Market Infrastructures” should apply to stablecoin arrangements that are deemed systemically important payment system functions or other financial market infrastructure (FMI) functions. The report also sets out considerations for determining whether a stablecoin arrangement is systemically important, such as its governance, risk management and liquidity for money settlement.
- A public consultation on the report and the questions listed in it has been launched and responses can be sent via email to both the CPMI Secretariat (cpmi@bis.org) and the IOSCO Secretariat (consultation-03-2021@iosco.org) by Dec. 1.
See related article: Stablecoins promise much, but can they deliver?