The FSB Landscape for Crypto and Digital Assets
Dietrich Domanski, Secretary General, Financial Stability Board
Originally published in the GDF Annual Report 2020
Technological innovation in the financial sector offers the potential for significant benefits, but also brings about new challenges. The Financial Stability Board (FSB) has been committed to developing a deep and early understanding of how innovation is transforming financial institutions and markets. Crypto assets have been a key part of this work.
Since 2018, the FSB has been monitoring the financial stability implications of crypto-asset markets. This monitoring considers for instance risks arising if crypto-assets became widely used in payments and settlement; risks from market capitalization and wealth effects; risks arising from exposures of financial institutions; and reputational risks to financial institutions and their regulators. To this day, the FSB believes that crypto-assets have not posed a material risk to global financial stability. However, the speed of market developments underlines the need for continuous vigilant monitoring.
One area of particular focus of the FSB work has been so-called “stablecoins” instruments that have the potential to reach global scale. While such instruments could enhance the efficiency of the provision of financial services, they could — if widely adopted — become systemically important in one or many jurisdictions, including as a means of making payments. As “stablecoins” continue to evolve, comprehensive and effective oversight of such instruments at the national and international level will be of the utmost importance.
The FSB has issued high-level recommendations for regulatory, supervisory, and oversight responses to address the financial stability
risks that global “stablecoins” may pose.
The recommendations call for regulation, supervision and oversight that is proportionate to the risks and require market stakeholders to adhere to applicable regulatory standards before commencing operations. Further, they promote the implementation of: comprehensive governance and effective risk management; robust systems for handling data; appropriate recovery and resolution plans; appropriate disclosure of information to users and relevant stakeholders; and legal clarity on redemption rights.
Through this work, the FSB aims to address the risks of global “stablecoins” while preserving the potential benefits. By applying the lens
of “same activity — same risk — same rules” independent of the underlying technology, the recommendations support innovation. They also provide flexibility for jurisdictions to implement domestic approaches, while stressing the value of cooperation and coordination among authorities across sectors and borders. During 2021, standard setting bodies will consider whether and how to update international standards in light of the FSB recommendations to ensure that risks are adequately mitigated.
The work on “stablecoins” has been incorporated into the comprehensive FSB roadmap to enhance cross-border payments that G20 Leaders endorsed in November 2020. The goal is to make cross-border payments faster, cheaper, more transparent and more inclusive, including remittances, while maintaining their safety and security. Achieving this goal would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion. The roadmap, organized along 19 Building Blocks, provides a high-level plan, which sets ambitious but achievable targets and milestones, to enhance cross-border payments in both the retail and wholesale space.
The involvement of the private sector, sharing their insights and practical expertise, as well as delivering change, will be key to support the practical implementation of the roadmap. The work under each building block will consider how to most effectively involve the private sector. With its comprehensive set of concrete actions, the roadmap has the ability to offer better, state-of-the-art payment services to use on a global scale.
Read more from regulators, policy makers, and industry leaders in the GDF Annual Report here.
Press date : 08.02.2020