The Board of the International Organization of Securities Commissions (IOSCO) released a public statement concerning the risks associated with global stable coin projects recently. The regulatory body met on October 30th in Madrid to discuss the new type of cryptocurrencies and the possible effects the coins could have on global economics. The news showcases the growing concerns regulators have towards major tech firms releasing cryptocurrencies, in particular, Facebook’s Libra.
The IOSCO is a leading international policy forum for securities regulators. The organization includes members from across the globe. Notably, the firm’s board includes 34 securities regulators. Today, the IOSCO regulates more than 95% of the world’s securities markets in more than 115 jurisdictions. Consequently, the organization enjoys recognition as the global standard-setter for securities regulation.
Risk vs Reward – Stablecoins – IOSCO
This latest report covers risks and benefits arising from stablecoin initiatives, specifically, stablecoin projects with a potential for global reach. Projects such as Facebook’s Libra create a unique scenario in which a stablecoin could see massive global adoption. In turn, this adoption could upend the current financial markets. Notably, the IOSCO believes many of these projects fall under current securities market regulation.
The IOSCO report begins with an acknowledgment that stablecoins can potentially offer benefits to market participants. These benefits include a more efficient and secure transaction process that extends to consumers and investors alike. Despite the upside of stablecoins, IOSCO believes that potential risks exist in many areas. The areas of most concern include consumer protection, market integrity, transparency, conflicts of interest, and financial crime. Additionally, systemic risks are another of the group’s main concerns.
Standardization – IOSCO
The group seeks to discover what principles and standards could apply to global stablecoin initiatives. The firm proposes a case-by-case approach to the evaluation of these projects. Basically, regulators want to review the rights and obligations conferred by a particular stablecoin to determine if it falls under their regulatory reach. Also, the body wants to ensure that the obligations of the sponsor are understood fully.
Speaking in the report, Ashley Alder, Chair of the IOSCO Board described how many global stablecoin initiatives include features that are typical of regulated securities. He explained that in these circumstances, IOSCO Principles and Standards may apply. Importantly, a project’s structure is the determining factor. This can include disclosure, registration, reporting, and distribution methods.
Alder reinforced his statements after citing the most recent g20 report on the matter. This report points to the inherent public policy and regulatory risks posed by these projects. Alder pointed to the most recent G7 statement regarding stable coins as well. Not surprisingly, the report echoes the concerns of the G20 nations. She spoke about the importance of these statements and the need to move forward with a global initiative.
Importantly, Alder explained that his organization will work closely with the Financial Stability Board on any follow-up reports in the works. In fact, Alder plans to work closely with multiple standard-setting bodies to ensure a globally coordinated response to these tokens. Importantly, one of the main goals of the report is to encourage international collaboration as a means to identify and mitigate potential issues as they emerge.
What to Expect
The IOSCO will continue its stablecoin assessment and consideration to better track the effects of these tokens. This research, combined with other researchers, and securities market regulators, should give the organization a better understanding of what to expect moving forward. For now, you can expect to see larger tech enterprises seek to utilize stablecoins to improve efficiency and save on costs associated with fiat currencies.
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