IOSCO, BIS publish call for comments on stablecoin arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) today published for public consultation preliminary guidance that confirms and clarifies that stablecoin arrangements should observe international standards for payment, clearing and settlement systems.
BIS explains that the transfer function of an SA is comparable to the transfer function performed by other types of financial market infrastructure (FMI). As a result, an SA that performs this transfer function is considered an FMI for the purpose of applying the PFMI and, if determined by relevant authorities to be systemically important, the SA as a whole would be expected to observe all relevant principles in the PFMI.
SAs may present some notable and novel features as compared with existing FMIs. These notable features relate to: (i) the potential use of settlement assets that are neither central bank money nor commercial bank money and carry additional financial risk; (ii) the interdependencies between multiple SA functions; (iii) the degree of decentralisation of operations and/or governance; and (iv) a potentially large-scale deployment of emerging technologies such as distributed ledger technology.
The report proposes guidance on the application of the PFMI with respect to these features of SAs, which should help SAs and relevant authorities in applying the PFMI to systemically important SAs.
“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.
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,” said Sir Jon Cunliffe, Chair of the CPMI and Deputy Governor for Financial Stability at the Bank of England.
In 2019, the Group of Seven and the Financial Stability Board (FSB) conducted work on the impact of global stablecoin arrangements and made recommendations for their regulation, supervision and oversight.
Preliminary analysis conducted by CPMI-IOSCO as part of an October 2020 FSB report found that “the PFMI apply to stablecoin arrangements that perform systemically important payment system functions or other financial market infrastructure (FMI) functions”.
Today’s consultation paper – Application of the Principles for Financial Market Infrastructures to stablecoin arrangements – upholds and confirms that determination.
“This report marks significant progress in understanding the implications of stablecoin arrangements for the financial system and providing clear and practical guidance on the standards they need to meet to maintain its integrity. We look forward to receiving submissions to further enhance our insights and recommendations,” said Ashley Alder, Chair of the IOSCO Board and Chief Executive Officer of the Hong Kong Securities and Futures Commission.
Each jurisdiction retains the prerogative to determine within its own context whether to allow stablecoin activity. If it does so, and if an SA is systemic or is likely to become systemic, then the PFMI (supplemented by the report’s guidance) would also apply.
The CPMI and IOSCO may further examine regulatory, supervisory and oversight issues associated with SAs and, as appropriate, coordinate with other standard- setting bodies to address outstanding gaps. This report is a key contribution to the G20 roadmap on cross-border payments and supports the FSB’s work in this area.