CPMI-IOSCO Propose Joint Regulation of Systemic Stablecoin Arrangements | Practical Law

CPMI-IOSCO Propose Joint Regulation of Systemic Stablecoin Arrangements | Practical Law

The Committee on Payments and Market Infrastructures (CPMI) at the Bank for International Settlements (BIS), a global forum for central banks, and the International Organization of Securities Commissions (IOSCO) have issued a joint report and proposed guidance that would regulate heavily used stablecoins in the same manner as major global clearing, settlement and payment services are currently regulated.

CPMI-IOSCO Propose Joint Regulation of Systemic Stablecoin Arrangements

Practical Law Legal Update w-032-9037 (Approx. 4 pages)

CPMI-IOSCO Propose Joint Regulation of Systemic Stablecoin Arrangements

by Practical Law Finance
Published on 07 Oct 2021 • USA (National/Federal)
The Committee on Payments and Market Infrastructures (CPMI) at the Bank for International Settlements (BIS), a global forum for central banks, and the International Organization of Securities Commissions (IOSCO) have issued a joint report and proposed guidance that would regulate heavily used stablecoins in the same manner as major global clearing, settlement and payment services are currently regulated.
On October 6, 2021, the Committee on Payments and Market Infrastructures (CPMI) at the Bank for International Settlements (BIS), a global forum for central banks, and the International Organization of Securities Commissions (IOSCO) issued a joint report and proposed guidance (report) for public comment that would regulate "systemic," or heavily used stablecoins in the same manner as major global clearing, settlement, and payment services, which are regulated by international standards.
Stablecoins are a type of cryptocurrency that is pegged to a specific unit of fiat currency (for example, one dollar). Stablecoins, such as Tether and USD Coin, enable decentralized finance (DeFi) and other forms of crypto finance, which are not possible with highly volatile cryptocurrency such as bitcoin (see Practice Notes, Decentralized Finance (DeFi): Overview: Tokenization and DeFi and Practice Point: Crypto Finance).
According to the report, CPMI-IOSCO studies have found that stablecoins perform systematically important payment-systems functions and other financial market infrastructure functions, an impact which has been enhanced by their rapid growth over the past year (Tether has grown from a $15 billion market capitalization to $68 billion and USD Coin from $2.7 billon to $30 billion). The report provides both clarification on the interpretation of existing standards for global clearing, settlement, and payment services when applied to stablecoins, as well as addressing the complex differences between stablecoin arrangements and traditional payment systems.
The report also suggests:
  • A "same risk, same regulation" principle, which would apply the current regulations for traditional settlement and payment systems to systemically important stablecoins.
  • Jurisdictional independence on deciding whether to allow stablecoin activity.
  • Applying all relevant Principles for Financial Market Infrastructures (PFMI) for any stablecoin arrangement that performs similar functions as other financial market infrastructures, including:
    • transfer of coins between users; and
    • use of settlements assets that present potential risk (not including central or commercial bank money).
  • Considering relevant principles and observing them accordingly to any stablecoin arrangement that performs any function closely resembling those performed by other Financial Market Infrastructures (FMIs).
The Biden administration has reportedly urged clarification on regulatory standards for cryptocurrencies, stating the Financial Stability Oversight Council (FSOC) within the US Treasury has the authority to designate stablecoins as systemically important, which would subject them to the same regulations as traditional currency.