The Bank Policy Institute (BPI) and The Clearing House (TCH) weighed in on two reports recently issued by the Financial Stability Board (FSB) on approaches for the oversight and regulation of digital assets and global stablecoins.
The two documents issued by the FSB that they are responding to are titled Regulation, Supervision, and Oversight of Crypto-Asset Activities and Markets and Review of the FSB High-level Recommendations of the Regulation, Supervision, and Oversight of Global Stablecoin Arrangements.
The first report outlines nine recommendations and seeks to define the international standards that would apply to crypto-asset activity across jurisdictions. The second document outlines 10 recommendations to address global frameworks enabling the use of stablecoins. Both TCH and BPI support the FSB’s 19 recommendations in the two consultative reports.
Overall, they praised FSB’s efforts to balance responsible innovation with comprehensive, clear, and consistent rules. However, the organizations found that the frameworks could be further strengthened in a few ways. One, they should explicitly clarify that the risks in the digital asset ecosystem primarily relate to the activities of nonbanks. Two, they should call on local authorities to define permissible activities for regulated banks. And three, they should establish universal definitions that distinguish among types of digital assets and the risks each may present.
“BPI and TCH support innovation but believe it must be conducted in a manner consistent with the safety and soundness of the financial system, anti-money-laundering and countering-the-financing-of-terrorism standards, and robust consumer and investor protections,” the joint letter the FSB states. “[The] comprehensive regulatory risk management framework distinguishes banking organizations from nonbanks, protects clients (including consumers), and promotes safety and soundness regardless of the activities in which banking organizations are engaged.”
The organizations point out that some 40 million people — or 16 percent of American adults –have invested in or used cryptocurrencies. They add that most of this activity has occurred outside of the regulated banking sector, leading to catastrophic losses for consumers and less trust in the financial system.
An international framework that promotes uniform standards across jurisdictions will help to ensure that consumers, investors, and businesses fully understand the benefits and risks of digital assets. Also, they say that nonbanks should operate under the same rules as banks, and banks should be provided with the clarity that they need to safely meet customer demand.
The FSB plans to coordinate with global regulators and begin implementing the recommendations in early 2023.