BIS Report: Regulatory Fragmentation Impedes Stablecoin Adoption Globally
Summary:
The Bank for International Settlements (BIS) has identified that international regulatory fragmentation is obstructing the effective use of stablecoins. In a study involving 11 jurisdictions, BIS stressed the urgent need for comprehensive stablecoin regulation to mitigate associated risks. The report explored the major discrepancies in existing regulatory approaches, detailing variations in issuance structure, redemption policies, and the definition of stablecoins. It emphasized the potential challenges this fragmentation poses to the integrated financial system worldwide. The study puts a spotlight on the further exploration of interaction between stablecoins and other digital assets.
The Bank for International Settlements (BIS) has highlighted that regulatory inconsistency across borders is hindering the usage of stablecoins, based on a review of regulations in 11 distinct regions. The study underscores the significance of swiftly implementing unified regulations for stablecoins to curb potential risks associated with their incorporation into the global financial ecosystem. However, different regulatory perspectives on authorization of issuers, reserve prerequisites, risk management, and Anti-Money Laundering protocols are the main challenges to achieving this. Stablecoin issuances are also subject to varying frameworks like banking, securities, commodities or payment systems depending on their structure.
Moreover, discrepancies in regulations, redemption policies, and definitions further complicate stablecoin implementation. For instance, algorithmic stablecoins, unlinked to external assets, are governed the same way as fiat-pegged stablecoins in certain regions. However, regions like the UK, Japan, Singapore administer separate rules while places like the United Arab Emirates forbid them outright.
The BIS report further clarifies that these discrepancies largely stem from the different design features of stablecoins, perceived risk attached to their issuance, and the nature of the issuing entity. Thus, this fragmentation can prove detrimental to a cohesive global financial system.
Depending on different jurisdictions, reserve segregation, custodian duties, and trust placements may all vary. Audit and liquidity conditions also differ substantially. The BIS report indicates the need to delve deeper into how stablecoins interact with other digital assets like central bank digital currency and tokenized deposits.
This report comes after BIS’ guidelines on stablecoin regulations were issued earlier in February. Several other international organizations including the International Monetary Fund, Financial Stability Board, Financial Action Task Force, Basel Committee on Banking Supervision, and International Organization of Securities Commissions have also proposed policies to improve their handling of stablecoins.
Published At
4/10/2024 11:54:17 PM
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