The Bank for International Settlements (BIS) has put forth recommendations for regulating ‘global stablecoins.’
In a summary of recommendations released on Thursday, the BIS characterized global stablecoins (GSC) as widely adopted stablecoins with the potential for significant reach and usage across multiple jurisdictions. The BIS noted that a GSC could potentially become systemically important within one or more jurisdictions.
According to BIS, key features in the determination of whether a stablecoin qualifies as a GSC are:
- Whether financial or operational disruptions in its arrangement or its failure, could have a material impact on crypto asset markets, the global financial system, and the wider economy
- Its potential uses in multiple jurisdictions
In 2022 and 2023, stablecoins became the preferred choice for the majority of illicit transactions as cybercriminals explored alternative means of conducting transactions, moving away from reliance on Bitcoin.
In its recent crypto crime report, blockchain analytics firm, Chainalysis, underscores that between 2018 and 2021, Bitcoin held the position as the favored ‘cryptocurrency of choice’ for criminals. Nonetheless, the scenario shifted in 2022 and 2023, with stablecoins taking the lead in terms of illicit transaction volume.
REPORT | Stablecoins Now Account for the Majority of Illicit Transactions in Crypto, Says Chainalysis
In its recent crypto crime report, blockchain analytics firm, Chainalysis, underscores that between 2018 and 2021, Bitcoin held the position as the favored 'cryptocurrency of… pic.twitter.com/s4XSEDANHO
— BitKE (@BitcoinKE) January 20, 2024
The BIS summary outlined key recommendations that aim to address financial stability risks posed by GSCs on both the domestic and international levels. The recommendations also seek to foster innovation in GSCs and offer flexibility for jurisdictions to adopt domestic approaches.
Key recommendations include urging global jurisdictions to be prepared to regulate and oversee global stablecoin arrangements, with an emphasis on cross-border cooperation, coordination, and information sharing.
“Risk management frameworks should be in place that comprehensively address all material risks associated with their functions and activities, especially with regard to operational resilience, cyber security safeguards and anti-money laundering/countering the financing of terrorism measures, as well as ‘fit and proper’ requirements, if applicable, and consistent with jurisdictions’ laws and regulations,” the BIS added.
Key areas of the recommendation summary also focus on data storage and access to data, redemption rights and prudential requirements.
According to BIS, although stablecoins have the potential to enhance the efficiency of how financial services are provided, ‘they may also generate risks to financial stability.’
“The recommendations seek to promote consistent and effective regulation, supervision and oversight of GSCs and stablecoins with the potential to become GSCs across jurisdictions. In addition, these recommendations emphasize a technology-neutral approach that prioritizes underlying activities and risks,” the BIS added.
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