The Bank for International Settlements (BIS) released recommendations for the regulation, supervision, and oversight of global stablecoin arrangements in a February 29 executive summary.
The international financial institution acknowledged the potential of stablecoins to enhance the efficiency of financial services, but they also highlighted the possibility of the assets generating risks to financial stability.
Potential Benefits and Risks of Global Stablecoins
Defining global stablecoins (GSC) in part as a stablecoin with “an existing or potential reach and use across multiple jurisdictions and that could become systemically important,” the summary listed ten key recommendations for arrangements to “maintain a stable value relative to a specified asset.”
Recommendations from BIS included comprehensive oversight of GSC activities and functions, cross-border cooperation, coordination, and information sharing, as well as creating authoritative risk management frameworks.
The BIS recommended that authorities collaborate across domestic and international levels “to encourage consistency of regulatory and supervisory outcomes.”
Importance of Authorities’ “Readiness” to “Regulate And Supervise” Stablecoins
The executive summary further recommended that authorities maintain “readiness to regulate and supervise global stablecoin arrangements” while emphasizing “conformance with regulatory, supervisory, and oversight requirements” prior to commencing operations.
“Authorities should have and utilize the appropriate powers and tools, and adequate resources, to comprehensively regulate, supervise and oversee a GSC arrangement and its associated functions and activities, and enforce relevant laws and regulations effectively,” the executive summary read. “In addition, these recommendations emphasize a technology-neutral approach that prioritizes underlying activities and risks.”
Promoting “Consistent And Effective” Regulation, Supervision And Oversight
Founded in 1930, BIS serves as “a bank for central banks” with the mission of supporting “central banks’ pursuit of monetary and financial stability through international cooperation.”
The Group of 20 (G20) ordered the Financial Stability Board to “examine regulatory issues raised by GSC arrangements and to advise on multilateral responses as appropriate” in 2019. In October of the following year, BIS originally published its “High-level Recommendations for the Regulation, Supervision, and Oversight of Global Stablecoin Arrangements” before ultimately issuing an updated version in July 2023.
BIS stated that the recommendations “seek to promote consistent and effective regulation, supervision and oversight of GSCs and stablecoins with the potential to become GSCs across jurisdictions.”