Clear rules and strict control are necessary to prevent stablecoins from putting global finance at risk, this is the Financial Stability Board‘s warning at the G20.
Ten commandments to be followed by the authorities that take an interest in the stablecoin phenomenon, this is how the FBS conveys its concerns at the G20 about the sinful nature of technology that is emerging from the technological and financial chaos of the new millennium.
The final report published last Tuesday is entitled:
“Addressing the regulatory, supervisory and oversight challenges raised by ‘global stablecoin’ arrangements”.
The reference to the Libra case is clear: the digital currency envisaged by Mark Zuckerberg has started a serious investigation by regulators.
A point of disambiguation is necessary: Libra is not a cryptocurrency based on public blockchain. It is a consortium project that wants to propose a digital currency that bases its value on a basket of mixed assets.
In this sense, it could be a competitor to FIAT currencies and could be similar to a private currency representing a basket of reserve value managed by the consortium.
The power of Facebook lies in its user base. There are 2.5 billion active users every month. No wonder someone got scared.
The ten points for regulating stablecoins
- Authorities should have and utilise the necessary powers and tools, and adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement and its multi-functional activities, and enforce relevant laws and regulations effectively.
- Authorities should apply regulatory requirements to GSC arrangements on a functional basis and proportionate to their risks.
- Authorities should ensure that there is comprehensive regulation, supervision and oversight of the GSC arrangement across borders and sectors. Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication and consultation in order to support each other in fulfilling their respective mandates and to facilitate comprehensive regulation, supervision, and oversight of a GSC arrangement across borders and sectors.
- Authorities should ensure that GSC arrangements have in place a comprehensive governance framework with a clear allocation of accountability for the functions and activities within the GSC arrangement.
- Authorities should ensure that GSC arrangements have effective risk management frameworks in place especially with regard to reserve management, operational resiliency, cyber security safeguards and AML/CFT measures, as well as ‘fit and proper’ requirements.
- Authorities should ensure that GSC arrangements have in place robust systems for safeguarding, collecting, storing and managing data.
- Authorities should ensure that GSC arrangements have appropriate recovery and resolution plans.
- Authorities should ensure that GSC arrangements provide to users and relevant stakeholders comprehensive and transparent information necessary to understand the functioning of the GSC arrangement, including with respect to its stabilisation mechanism.
- Authorities should ensure that GSC arrangements provide legal clarity to users on the nature and enforceability of any redemption rights and the process for redemption, where applicable.
- Authorities should ensure that GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing any operations in that jurisdiction, and construct systems and products that can adapt to new regulatory requirements as necessary.
For the time being, the small cryptocurrency world does not worry regulators: only the Facebook giant has sparked their interest, and this issue will also affect the crypto space.
Some of them are already active and close to the regulators since the beginning, others move within the unclear regulatory framework, there is no doubt that the difference from the Libra proposal remains clear. The underlying for the former is the dollar, whereas for Libra it won’t be so.
It will be interesting to understand how these rules will be applied to algorithmic stablecoins such as DAI and all those that will follow on Ethereum or other chains. Pandora’s box has been opened and it won’t be easy to close it again.
The MakerDAO project is not yet totally decentralized but nevertheless, even in a future of total disintermediation, it will be monitored and updated by a decentralized autonomous organization. The application of these rules will not be easy in this last case.