Financial Stability Board releases regulatory recommendations in July: Most stablecoins do not meet requirements

The Financial Stability Board (FSB), established by the G20 Financial Stability Forum, is set to finalize its regulatory recommendations on cryptocurrencies in July this year. Central bank members from various countries will pay particular attention to global stablecoins, as they may have a more significant impact on financial stability.

Most Existing Stablecoins Do Not Meet Standards

FSB Chairman Klaas Knot stated that regulatory recommendations for stablecoins will include: strengthening governance frameworks, clear and enhanced redemption rights, while maintaining effective stability mechanisms.

He mentioned that based on current research, many existing stablecoins do not meet these high-level requirements, nor do they comply with international standards, as well as the rules of the Bank for International Settlements (BIS) and guidelines from the International Organization of Securities Commissions (IOSCO).

Overall, FSB's recommendations aim to promote comprehensive regulation and international standards. It will also release a report later this year in collaboration with the International Monetary Fund (IMF), combining its work on macroeconomic and monetary issues, as well as FSB's views on cryptocurrency regulation policies. FSB also specifically mentioned cross-border risks in Emerging Market and Developing Economies (EMDE).

FSB stated that its principle is "same activity, same risk, same regulation," which is expected to lay a solid foundation for potential benefits of financial innovation while controlling its risks.

In addition, the FSB chairman warned in this speech that DeFi should be monitored to prevent further risks.

Recent Controversies Surrounding Stablecoins

In addition to efforts to improve reserves and enhance redemption efficiency, stablecoin issuers have faced authorization issuance issues that have drawn attention, such as BUSD, as well as securities concerns.

Paxos, the issuer of BUSD, was ordered by New York regulators to stop issuing BUSD because BUSD issued on the Binance Chain by its client Binance was not authorized by regulators. Furthermore, BUSD has been accused by the SEC of being a security, although specific details have not yet emerged. There are concerns that some stablecoins may constitute a shared concern in the money market mutual fund industry.