The Financial Stability Board (FSB) has published two papers related to digital currency in preparation for the G20 in late November. The first on global stablecoins, titled 'Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements' outlines high-level recommendations for the regulation, supervision and oversight of global stablecoin (GSC) arrangements. The second explores cross-border payments and sets out a broad timetable to explore central bank digital currencies (CBDC) for cross-border purposes. Remarkably, two papers on GSC's manage to avoid mentioning Libra by name even once.
In the FSB's outline of the first report, it unfortunately adopts the FATF's penchant for the terminology "so called stablecoins", and uses the following ambiguous definition:
So called “stablecoins” are a specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale
Of course, it wouldn't be a psuedo-regulator/government report without a laundry list of perceived risks of implementing a CBDC. The paper identifies (deep breath) challenges for financial stability; consumer and investor protection; data privacy and protection; anti-money laundering (AML); tax evasion; fair competition and anti- trust policy; market integrity; sound and efficient governance; cyber security and other operational risks; safety of payment systems as those key risks.
The key outcome of the first report is a set of ten recommendations for GSCs, which largely mirrors the recommendations previously published by the FSB in a consultation report in April 2020. The recommendations are that GSCs:
should be comprehensively regulated and supervised;
should be regulated in proportion to the risks;
should be regulated internationally through jurisdiction coordination to prevent gaps in oversight;
have governance frameworks which are comprehensive and identify accountability;
have effective risk management for reserves, operational resiliency, cybersecurity, AML/CFT;
have robust systems for safeguarding, managing, storing data;
have recovery plans;
provide transparent information about functions including any stabilization mechanism;
provide legal clarity on the enforceability of redemption rights; and
meet all regulatory, supervisory and oversight requirements of any jurisdiction before operating.
It's difficult to see how the above recommendations are anything other than broad motherhood statements of laudable ends which few could disagree with, but the real challenges are how detailed regulation will assist in meeting this without stifling innovation and new business.
The second report focuses less on GSC's specifically and CBDC's generally, and focuses on the more general goal of enhancing cross-border payments as a whole. This report builds on the earlier FSB’s Stage 1 report, and the Committee on Payments and Market Infrastructures (CPMI)’s Stage 2 report. The FSB’s Stage 1 report, published in April 2020, identified the four challenges to be addressed in cross-border payments, namely, high costs, low speed, limited access and insufficient transparency, as well as the frictions that contribute to those challenges. The Stage 2 report, published by the CPMI in July 2020, set out a framework of the necessary elements required address those challenges.
The roadmap builds on the above by using the 19 building blocks set out in the CPMI’s Stage 2 report, covering the following focus areas:
Focus area A: Committing to a joint public and private sector vision to enhance crossborder payments
Focus area B: Coordinating on regulatory, supervisory and oversight frameworks
Focus area C: Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
Focus area C: Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
Focus area E: Exploring the potential role of new payment infrastructures and arrangements
These are summarised below:
The potential for GSCs and central bank digital currencies to address the challenges that cross-border payments face without compromising on minimum supervisory and regulatory standards to control risks to monetary and financial stability is included in Focus Area E.
The takeaway from all of the above is that, in terms of timing, the key international standards bodies will make revisions to cross-border payments standards by the end of 2021. By July 2022, national authorities have to consider the impact of those standards on local regulations. Given that Libra has repeatedly confirmed its intention to only launch once it is fully regulated and compliant, this appears unlikely to occur before th end of 2021, which is the apparent deadline for when:
National authorities establish or, as necessary, adjust for any existing GSCs and stablecoin arrangements that have the potential of becoming a GSC.
Notwithstanding the above, the participants in the Committee on Payments and Market Infrastructures (CPMI) remain optimistic. Speaking on the reports, and in particular the roadmap, Jon Cunliffe, Deputy Governor of the Bank of England, Chair of the CPMI and the other Co-Chair of the CPC said:
The roadmap will transform cross-border payments to make them faster, cheaper, more transparent and inclusive. National authorities and international organisations are committed to delivering this roadmap to enhance cross-border payments
Only time will tell. Meanwhile RippleNet continues to forge ahead, using actual blockchains to make international payments faster and cheaper while meeting compliance obligations.
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