Existing Stablecoins Won’t Meet Forthcoming Global Standards: FSB

Many existing stablecoins would not meet the “high-level” recommendations soon to be set by global standard setters like the Financial Stability Board (FSB), its Chair Klaas Knot said on Monday.

The FSB’s upcoming guidance targets the strengthening of stablecoin governance frameworks, redemption rights and stabilization mechanisms, Knot said in a letter to G20 finance ministers and central bank governors.

According to its work plan for 2023 published on Monday, the FSB is set to finalize its recommendations for regulating crypto and stablecoins by July. Stablecoins are cryptocurrencies pegged to the value of other assets like the U.S. dollar or the euro.

Regulators around the world have been taking steps to oversee payments-focused stablecoins, most of which are backed by fiat currency reserves in the form of cash equivalents – or more infamously by unsecured short-term debt. While stablecoin issuers have made efforts to cut private debt out of their reserves and improve transparency, Knot’s message indicates these measures may not be enough.

In his letter, Knot added that many existing stablecoins wouldn’t meet the international norms set by payments or securities standard setters either.

In February 2022, the FSB warned that crypto risks to financial stability “could rapidly escalate.” Regulators around the world, including the FSB, have been increasing efforts to oversee the sector following last year’s many company collapses – including token issuer Terra and crypto exchange FTX.

Last week, the FSB said it will work with other standard-setting bodies to determine how decentralized finance (DeFi) should be regulated. It is also planning a paper with the International Monetary Fund (IMF) on regulatory issues associated with crypto.

Read more: Global Standard Setters Will Team Up to Tackle DeFi Regulation: FSB