Review of the FSB High level Recommendations

Review of the FSB High level Recommendations of the Regulation

In October 2020, the FSB issued a report with a set of 10 high-level recommendations on the
regulation, supervision and oversight of so-called “global stablecoin” (GSC) arrangements
(“High-level Recommendations”). The G20 endorsed the High-level Recommendations, and in
October 2021 the FSB provided a status update on the progress made on their implementation.
In 2022 the FSB, in consultation with relevant international standard-setting bodies (SSBs) and
international organisations, reviewed its High-level Recommendations, including how any gaps
identified could be addressed by existing frameworks, considering recent market and policy
developments. This report describes the findings from this review, covering:
■

Recent market developments and the characteristics of existing stablecoins (section 1);

■

Recent policy developments, including regulatory initiatives and recent work of the
SSBs (section 2); and

■

Proposals to revise the High-level Recommendations (section 3).

The High-level Recommendations seek to promote consistent and effective regulation,
supervision and oversight of GSCs across jurisdictions to address the potential financial stability
risks posed by GSCs, both at the domestic and international level, while supporting responsible
innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches.
The recommendations are intended to be flexible so that they can be incorporated into the wide
variety of regulatory frameworks potentially applicable to GSCs around the world.
There is no universally agreed legal or regulatory definition of stablecoin. The term stablecoin
used in this report does not denote a distinct legal or regulatory classification. Importantly, the
use of the term “stablecoin” in this report is not intended to affirm or imply that its value is stable.
Rather, the term is used because it is commonly employed by market participants and
authorities. The FSB’s 2020 report, “Regulation, Supervision and Oversight of ‘Global
Stablecoin’ Arrangements” described three characteristics that distinguish a GSC from other
crypto-assets and other stablecoins. Those characteristics include: (i) the existence of a
stabilisation mechanism, (ii) the usability as a means of payment and/or store of value 1, and (iii)
the potential reach and adoption across multiple jurisdictions. The first two characteristics (the
existence of a stabilisation mechanism and usability as a means of payment and/or store of
value), and the unique risks that these characteristics pose, distinguish stablecoins from other
crypto-assets. The third, the potential reach and adoption across multiple jurisdictions,
differentiates GSCs from other stablecoins.
The FSB aims to finalize updated high-level recommendations by July 2023 reflecting comments
received through public consultation.

1

To be useable as a means of payment and/or store of value, a stablecoin arrangement typically provides three core functions.
These core functions include (i) issuance, redemption and stabilisation of the value of the coins; (ii) transfer of coins; and (iii)
interaction with coin users for storing and exchanging coins.

1

1.

Recent market developments

This section describes recent strains in crypto-asset markets and their implications for the review
of the High-level Recommendations. It also discusses existing crypto-assets that are marketed
as stablecoins, and identifies issues and potential gaps that deserve further emphasis by the
revised High-level Recommendations.

1.1.

Strains in crypto-asset markets and implications for stablecoins

Strains in crypto-asset markets earlier this year reinforce messages in recent FSB reports on
the importance of internationally coordinated regulation in this area and the FSB’s role facilitating
cross-border and cross-sectoral cooperation among jurisdictional financial authorities and
international standard-setting bodies.
After rising dramatically over the previous 18 months, crypto-asset prices collapsed in May of
2022 due to macroeconomic pressures and financial market conditions as well as crypto-specific
events. To date, the collapse in crypto-asset prices has been broadly contained within the cryptoasset markets and has not significantly impacted the traditional financial system. However, this
turmoil has confirmed vulnerabilities with certain existing stablecoins, particularly those that rely
on other crypto-assets as an alleged stabilisation mechanism. These vulnerabilities include the
limited ability of users to redeem directly with the issuer, the low quality and lack of transparency
of reserve portfolios, and flawed business models that rely on uninterrupted capital inflows
attracted by the promise of unsustainably high returns.
Leading up to the strains in crypto-asset markets, market values ballooned, and a wide range of
speculative investment projects received substantial inflows.
In recent years, there has been large growth of ancillary activity focussing on creating investment
opportunities to generate yield from crypto-assets themselves, meaning the crypto-asset
ecosystem has become more complex. Centralised crypto-asset platforms and decentralized
finance (DeFi) protocols offer a range of financial services, including borrowing/lending, trading,
insurance, and asset management.

2

Stablecoin market capitalisation, trading volumes and peg deviations
Daily market capitalisation of stablecoins

Graph 1

Daily market share of stablecoins
USD bn

Per cent

Weekly average of daily trading volumes1 of stablecoins

Average weekly realised deviations from stablecoin peg

USD bn

US dollar

US dollar

The vertical lines in panels 1,3, and 4 indicate 23 February 2022, the day before the start of the Russia-Ukraine war, and 9 May 2022, the
day TerraUSD started to decouple from its peg.
Prices are averages provided by CryptoCompare’s Crypto Coin Comparison Aggregated Index methodology (CCCAGG), which calculates
the market price of crypto-asset pairs traded across exchanges using a volume-weighted average for every asset pair.
1

Sources: CoinGecko; CryptoCompare; Tether; FSB calculations.

The collapse of algorithmic stablecoin Terra (UST) highlights the high risk of loss and potential
fragility of stablecoins that lack appropriate and effective stabilisation mechanisms.
UST claimed to maintain its peg, assuming traders would take advantage of arbitrage
opportunities between UST and Luna (the native mining token of the Terra blockchain), by
expanding and contracting the circulating supply of both tokens to maintain parity with the dollar.
The arbitrage was claimed to work as follows: 1 UST could be exchanged for $1.00 of Luna.
$1.00 of Luna could be exchanged for 1 UST. Traders could obtain arbitrage profits if the market
price of UST rose above or fell below its $1.00 peg. This mechanism depended on arbitrage
activity and an active trading market.
The main purported use case of UST prior to its collapse was its use in DeFi lending protocols,
such as Anchor, which advertised annual percentage yields of up to 20% on deposited funds.
However, Anchor’s deposits were outsized relative to its loans (see graph 2, panel 3), and the
lending rates on its loans were lower than the interest rate on its deposits. Therefore, Terra’s
overall business model was unsustainable.

3

According to reports, widespread withdrawals of UST deposits on the Anchor DeFi lending
protocol over the weekend of 7 May caused panic among UST users, as deposits dropped from
$11.1 billion on 5 May to $300 million by 12 May. 2 UST struggled to maintain its $1.00 price
target, and, amid continued withdrawals, the price of UST collapsed (see graph 2, panel 2) and
investors lost confidence in its “unbacked” token, Luna, which underpinned its stabilisation
mechanism. UST’s algorithm was designed to match supply and demand through the arbitrage
mechanism described above. However, as the price of UST fell, investors rushed to sell more
UST and the stabilisation mechanism caused the supply of Luna to increase, putting further price
pressure on Luna, which caused even more new supply to be issued. The result was a rapid
devaluation of Luna; the price of Luna fell from $87.33 on 5 May to $0.0002 and Luna’s supply
increased from 352 million at the beginning of May to 6.5 trillion as of 16 May. With the price of
Luna essentially falling to zero, traders would have little or no incentive to engage in the arbitrage
activity that underpinned UST’s stabilisation mechanism.
Terra failed largely because it promised to maintain a $1.00 price but did not support its promise
with an appropriate and effective stabilisation mechanism. Indeed, Terra’s stabilisation relied on
another crypto-asset that had no intrinsic or inherent value, Luna. The collapse of UST points to
its flawed arrangement, including its algorithm, and underscores, more generally, the inherent
difficulty of designing a robust stabilisation mechanism based on an algorithm and arbitrage
strategy involving assets with no inherent value.
Terra/Luna context
Terra market capitalisation
Index, 1 Jan 2022 = 100

Graph 2
Luna price and market capitalisation
USD bn

Terra locked into Anchor protocol

US dollar

USD bn

The vertical line indicates 9 May 2022, the day TerraUSD started to significantly decouple from its peg.
1

Top 5 stablecoins by market capitalisation as of 16 May 2022: Tether, USD Coin, Binance USD, Dai and Magic Internet Money.

Sources: CoinGecko, The Block; FSB calculations.

Tether, the largest fiat-referenced stablecoin, broke its $1.00 peg target and lost substantial
market value over the ensuing weeks. Tether limits users’ access to direct redemption from the
issuer and provides only limited disclosures about its stated reserves. While Tether claims to
have disclosed its reserves, those reserves have not been disclosed in detail and have not been
audited.

2

Data sourced from Defi Llama.

4

In that context, the price of USDT broke its $1.00 price target on 11 May 2022 and briefly fell to
as low as $0.95 on 12 May 2022 amid large withdrawals. These outflows may have been caused
by a variety of factors, including broader market fears around crypto-assets, liquidations of
leveraged positions as crypto-asset prices declined generally, and uncertainty over the stability
of stablecoins following Terra’s collapse.
Tether offers $1.00 redemptions only to certain participants through its “official” wallet; however,
most retail users cannot access Tether’s official redemption wallet. As a result, many users must
sell USDT via exchanges where the secondary market prices reflected the supply/demand
dynamics.
Tether

Graph 3

Tether reserves breakdown1

Tether and other stablecoin daily
prices since May4
Per cent

Daily change of market capitalisation
of Tether vs other large stablecoins

US dollar

USD bn

CP = Commercial paper; CDs = Certificates of deposit; CBs = Corporate bonds; MMFs = Money market funds.
The vertical line indicates 9 May 2022, the day TerraUSD started to significantly decouple from its peg.
Reserves are unaudited and self-disclosed by Tether. 2 Includes deposits at banks and government money market funds. 3 Includes
Treasury bills and Treasury bonds with a maximum maturity of 3 years. 4 Prices are averages as provided by CryptoCompare’s Crypto Coin
Comparison Aggregated Index methodology (CCCAGG), which calculates the market price of crypto-asset pairs traded across exchanges
using a volume-weighted average for every asset pair.
1

Sources: CryptoCompare; Tether; FSB calculations.

1.2.

Analysis of existing stablecoins

The FSB analysed several of the largest existing stablecoins using publicly available information
to inform its review of the High-level Recommendations. The stablecoins included in the analysis
comprised a sample of the largest existing stablecoins based on reported market values and
included different stabilisation methods and issuer models. The analysis found that the existing
stablecoin arrangements analysed would not meet the FSB’s High-level Recommendations.
Existing stablecoins perform a range of functions and their stated aspiration is to become widely
adopted means of payment across borders. At present, however, stablecoins are acting as a
substitute for fiat currency in the crypto-ecosystem through their use in purchasing, settling,
trading, lending and borrowing other crypto-assets. They also serve as collateral in crypto-asset
transactions, notably for facilitating trading, lending, and borrowing of crypto-assets. Use cases
of stablecoins are evolving, which will require careful coordination and collaboration between
sectoral standard setters and relevant authorities internationally for timely and effective action.

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Existing stablecoins also have a global customer base and global operations (see graph 4).
Despite their limited size relative to more traditional internationally active financial companies,
their operations may raise cross-border issues.
Global reach of existing stablecoins

Graph 4
Volume, in per cent

APAC = Asia Pacific; EMEA = Europe, the Middle East, and Africa; LAD = Latin America; NA = North America
Stablecoin volumes calculated from raw transaction data from Ethereum, Tron, Binance Smart Chain, Polygon, and Avalanche C-Chain
blockchains. Stablecoins included in the analysis: Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TrueUSD (TUSD), Dai (DAI),
and TerraUSD (UST).
The analysis used web traffic data to crypto-asset service provider websites to estimate the percentage of stablecoin volume attributed to
different regions.
Source: TRM Labs

Most existing stablecoin issuers promise (implicitly or explicitly) to maintain a stable value,
typically relative to a single fiat currency. However, many of these existing stablecoins are issued
by unregistered and unlicensed entities and do not have credible mechanisms to support their
promise of price stability.
Terra’s collapse has emphasized the importance of clarifying existing stablecoins’ redemption
rights and strengthening stabilisation mechanisms. Today, the largest stablecoin issuers
constrain users’ redemption rights by limiting the types of users that can redeem directly with the
issuer. Some issuers offer redemption only weekly, reserve a broad ability to delay or deny
redemptions, impose account eligibility requirements, or set high minimum thresholds for
redemptions. The result of these limitations is that most users must sell their stablecoins on
exchanges at prevailing market prices, where the redemption price is not guaranteed.
Existing stablecoins employ a range of stabilisation methods, with most of them relying to some
extent on secondary market trading to maintain stability. Whether purporting to use reserve
assets, over-collateralisation, algorithmic protocols, or a combination of these mechanisms,
most stablecoins enable arbitrage activities of market participants and to a considerable extent
rely on them to maintain the stablecoin’s value against the reference asset(s). However, it is
unclear how these arbitrage activities would perform under conditions of market stress, raising
questions about the effectiveness of the stabilisation mechanisms in supporting a stable price at
all times.
Clear and direct lines of responsibility and accountability are not evident in existing stablecoin
arrangements. In many cases issuers do not provide transparent information on the ownership,
legal structure and management of the relevant operating entities (including members of the
senior leadership team), as well as relationships with affiliates or other companies. Disclosures

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regarding the governance and operations of the stablecoin arrangements are extremely limited,
and marketing is potentially misleading across many stablecoin arrangements.
Some existing stablecoin arrangements claim to be managed through purportedly
“decentralised” mechanisms. However, it remains unclear to what extent governance is actually
decentralised, or whether certain large players can obscure their influence behind an illusion of
decentralization. In some cases, for example, voting power in governance may be concentrated
with core developers and initial investors.
Disclosures by the stablecoin arrangements on the investment mandate, the redemption rights
and functioning of the stabilisation mechanism, including the composition and quality of reserve
assets, are infrequent and often incomplete. Some of the largest stablecoin issuers report only
high-level information on the composition and quality of their reserve assets on any regular basis.
These disclosures are seldom audited and do not include sufficient detail to determine whether
the claimed reserve assets adequately support the stabilisation mechanism on an ongoing basis.
In addition, fundamental details of the holdings, especially for lower quality and non-fiat assets,
such as the issuer, maturity and in some cases even asset type, are often not disclosed.
This analysis indicates that most existing stablecoin arrangements do not meet the FSB’s Highlevel Recommendations. Specifically, they would need to make significant improvements to their
governance, risk management, redemption rights, stabilisation mechanisms and disclosures, in
order to meet the High-level Recommendations – and in particular 4, 5, 8 and 9 – if they are
GSCs or have the potential to become GSCs.

2.

Recent policy developments

Jurisdictions and SSBs have made substantial progress implementing the High-level
Recommendations and reviewing their relevant international standards (see Annex 4 for a
detailed description of recent policy work by jurisdictions and SSBs). Many jurisdictions have
proposed, and some have recently adopted, new rules or legislation, while others have amended
or plan to amend existing rules to address the risks of stablecoins and/or to bring non-compliant
stablecoin arrangements into compliance with applicable regulations. In addition, SSBs have
issued guidance to address the risks of stablecoin arrangements and clarify the application of
their existing standards within existing international regulatory frameworks.
However, additional work remains to implement the high-level recommendations fully across
jurisdictions and ensure GSCs are subject to comprehensive regulation, supervision and
oversight. Some jurisdictions have yet to develop a regulatory approach for stablecoins, while
other jurisdictions that have developed new or amended existing regulations will now shift to
implementing those regulations and supervising stablecoin arrangements under their authority.
Other jurisdictional authorities have existing laws and regulations that apply. Understandably,
given the changing and diverse use of stablecoins, jurisdictions have been pursuing different
regulatory approaches, treating them as banking activities, securities, payment systems, or none
of the above. These different approaches may create challenges to consistent oversight and
effective cross border coordination and cooperation (see section 3.3).
The FSB High-level Recommendations provide that authorities should rely on existing sectoral
standards and principles, wherever GSC arrangements perform the same economic function

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and pose the same risks as existing regulated activities covered by these standards. 3 Standard
setting bodies – including BCBS, CPMI, IOSCO, and FATF – have made substantial progress
in their review of whether and how existing international standards can apply to stablecoin
arrangements, taking into account the novel features of GSCs and the need to promote
international cooperation and reduce the risk of regulatory arbitrage or underlaps. Their findings
have also informed the FSB’s review of its High-level Recommendations.
These combined efforts of the FSB and the SSBs aim at minimising the risk of fragmentation
and regulatory arbitrage. FSB members welcomed the CPMI-IOSCO guidance, Application of
the Principles for Financial Market Infrastructures to Stablecoin Arrangements, which is a major
step forward in applying “same activity, same risk, same regulation” to systemically important
stablecoins that are used primarily for making payments. FSB members also support BCBS’s
ongoing work on the prudential treatment of banks’ crypto-asset exposures and IOSCO’s
ongoing work on DeFi and crypto-assets through its FinTech Taskforce, including the published
IOSCO Decentralized Finance Report. While focusing primarily on investor protection and
market integrity, IOSCO’s work aims at reducing vulnerabilities and supports the FSB’s
coordinated efforts to address financial stability risks associated with the crypto-asset
ecosystem. International standard setting bodies are also working closely together to develop a
shared understanding of the applicability of existing standards to stablecoin arrangements, and
how their respective regimes interact with each other to help promote coherence across
standards.

3.

Review of the High-level Recommendations

The objective of the High-level Recommendations is to promote consistent and effective
regulation, supervision and oversight of GSCs across jurisdictions to address the potential
financial stability risks posed, both at the domestic and international level, while supporting
responsible innovation and providing sufficient flexibility for jurisdictions to implement domestic
approaches. This objective remains unchanged and is consistent with the FSB’s July 2022
Statement on International Regulation and Supervision of Crypto-asset Activities. 4
Whereas existing stablecoins are not widely used outside crypto-asset markets, and have not to
date posed a significant threat to global financial stability, their rapid growth, use across multiple
jurisdictions, and potential to quickly scale in size may mean that they could pose a greater threat
in the future if not subject to robust regulatory and supervisory policies. Authorities therefore
need to be ready to regulate and supervise stablecoin arrangements even before they evolve
into GSC arrangements. Accordingly, the revised High-level Recommendations extend the
scope to stablecoins with the potential to become GSCs. The introduction to the revised Highlevel Recommendations also provides that authorities should, consistent with their respective
mandates, choose to apply some High-level Recommendations in a proportionate manner to
stablecoin arrangements more widely, taking into account the size, complexity and risk of those
stablecoins.

3
4

See section 3.2 of the FSB’s 2020 report for a detailed discussion of international standards that could apply to stablecoin
arrangements.
Available here.

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The introduction also references the FSB’s recommendations for crypto-assets and markets (CA
Recommendations) [issued in October 2022], which cover the crypto-asset ecosystem in
general. Whereas the CA Recommendations cover all crypto-assets and associated issuers,
intermediaries and service providers, crypto-assets that would be considered GSCs and
stablecoins with the potential to become GSCs should also be subject to the regulatory and
supervisory recommendations set out in the revised GSC Recommendations. The FSB’s
proposed recommendations taken together seek to achieve consistent and comprehensive
regulatory coverage of crypto-assets and markets, including stablecoins. The two sets of
recommendations are closely interrelated, as they both cover issuers, intermediaries and service
providers. They have been developed as stand-alone documents but are intended to be
consistent where they cover the same issues and risks. In particular, issuers, intermediaries and
service providers that are part of a GSC arrangement would be covered by the High-level
Recommendations for their activities related to GSCs and would also be covered by the
recommendations for crypto-assets for their activities more generally.
Moreover, it is suggested that the FSB undertake a review of implementation of the revised Highlevel Recommendations by end-2025. The review may be carried out as an FSB thematic peer
review and may help inform further review or development of recommendations and
implementation guidance, as necessary.
In the grey boxes below, underlined text highlights substantive revisions from 2020 High-level
Recommendations.
Revised FSB High-level Recommendations: Objectives, scope and follow-up
These High-level Recommendations seek to promote consistent and effective regulation, supervision
and oversight of GSCs and stablecoins with the potential to become GSCs across jurisdictions
(hereafter, unless otherwise specified, they are collectively referred to as “GSCs”) to address the
financial stability risks posed, both at the domestic and international level, while supporting responsible
innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches.
The recommendations are intended to be flexible so that they can be incorporated into the wide variety
of regulatory frameworks potentially applicable to GSCs around the world. They aim to promote a
regulatory, supervisory and oversight environment that is technology neutral and focuses on underlying
activities and risks.
The recommendations are addressed to financial regulatory, supervisory and oversight authorities at a
jurisdictional level. They should be applied by individual authorities to the extent they fall within the
authorities’ remits.
Grounded in an assessment of a GSC arrangement’s economic functions and the principle of “same
activity, same risk, same regulation”, and focused on regulatory objectives and outcomes, authorities
should apply and, if necessary, develop effective regulatory, supervisory and oversight approaches and
cross-border cooperation mechanisms within their respective mandate and legal frameworks.
At the same time, the recommendations set out expectations for providers of services and activities
within the GSC arrangements and can serve as a basis for authorities’ active engagement with
stakeholders on GSC-related risks and how these are addressed.
Scope
The recommendations focus on addressing risks to financial stability and therefore do not
comprehensively cover important issues such as AML/CFT, data privacy, cyber security consumer and
investor protection, market integrity, competition policy, taxation, monetary policy, monetary
sovereignty, currency substitution, or other macroeconomic concerns. However, they acknowledge that

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a comprehensive supervisory and regulatory framework for GSC arrangements should effectively
address those other issues in addition to financial stability risks.
The recommendations apply to any GSC in any jurisdiction and help authorities to address activities
and services within GSC arrangements that may fall outside some jurisdictions’ traditional regulatory
perimeter. Section 4.4 includes potential elements that could be used to determine whether a stablecoin
qualifies as a GSC. Consistent application of these recommendations by all relevant authorities in
jurisdictions in which GSC arrangements are active may help to ensure comprehensive regulatory
coverage and reduce the scope for regulatory arbitrage.
While focusing on GSCs identified based on this report and the criteria set out in Section 4.4, authorities
may choose to apply relevant High-level Recommendations as appropriate to stablecoin arrangements
more widely, taking into account the size, complexity and risks of those stablecoins.
The High-level Recommendations complement and are intended to inform any potential updates to
international sectoral standards and principles. In particular, they complement the FSB’s
recommendations for crypto-assets and markets that should apply to any crypto-asset activity that
poses financial stability risks, including stablecoins. Authorities should rely on sectoral standards and
principles for cross-border cooperation where GSC arrangements perform the same economic function
as existing regulated activities covered by those standards. These include, for example, the IOSCO
Principles regarding Cross-Border Supervisory Cooperation, the CPMI-IOSCO Principles for Financial
Market Infrastructures, including the Responsibilities of Authorities and particularly Responsibility E, the
FATF standards, in particular Recommendation 15, and the relevant principles applicable to crossborder banking supervision and crisis management of the BCBS and the FSB. Efforts by the SSBs to
review, and where appropriate adjust, their standards to take into account the novel features of
stablecoins can further promote international consistency and reduce the risk of regulatory arbitrage or
regulatory underlaps.
Follow-up and review
The FSB will monitor the implementation of the revised recommendations and, by end-2025, undertake,
in cooperation with the SSBs, a review of their implementation and assess the need to update the
recommendations and/or relevant international standards.

3.1.

Authorities’ readiness to regulate and supervise global stablecoin
arrangements

In order to ensure that stablecoins that may be used for payments and/or a store of value and
that could scale rapidly are subject to appropriate regulation, supervision and oversight, the
proposed revision to recommendation 1 emphasizes the need for authorities to be ready to
mitigate financial stability risks of GSCs.

FSB High-level recommendation 1
Authorities should have and utilise the necessary or appropriate powers and tools, and
adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement
and its associated functions and activities, and enforce relevant laws and regulations
effectively.
Authorities within a jurisdiction, either independently or collectively, should have and utilise the powers
and capabilities to, as applicable, regulate, supervise, oversee and, if necessary or appropriate,
effectively prohibit stablecoin activities being conducted and stablecoin services being offered to users

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in or from their jurisdiction, consistent with jurisdictions’ laws and regulations. This may include, for
example, activities and services related to the governance and control of the stablecoin arrangement,
operating its infrastructure, issuing and redeeming stablecoins, managing stablecoin reserve assets,
providing custody or trust services for those assets, trading and exchanging stablecoins, or storing the
keys providing access to stablecoins. Application of an authority’s powers to regulate, supervise, and
oversee GSC arrangements should be commensurate with their existing or potential size, complexity,
risk and/or extent of use as a means of payment and/or store of value.
Authorities should ensure that they are ready to use their powers and capabilities to regulate, supervise
and oversee GSC arrangements. Authorities should consider the potential for stablecoins to rapidly
scale and become a GSC and should ensure appropriate monitoring of GSC activities and any
significant changes to the way those activities are conducted. Authorities should have timely access to
relevant information sufficient to conduct effective regulation, supervision and oversight.
Authorities’ powers should extend to entities and persons that are engaged in activities of GSCs in their
jurisdictions and fall within the scope of their authority and mandate. Authorities should evaluate,
identify, and clarify which authorities have responsibility for each activity of a GSC arrangement, as
appropriate.
Authorities should identify and address any significant gaps in their regulatory, supervisory and
oversight frameworks through changes in regulations, or policy, as appropriate. In some jurisdictions,
legislative changes may be necessary or appropriate to address those gaps.
Authorities should have the powers and capabilities to enforce applicable regulatory, supervisory and
oversight requirements, including the ability to undertake inspections or examinations, and, when
necessary or appropriate, require corrective actions and take enforcement measures. To do so,
authorities should be provided with or obtain sufficient information regarding the technology and legal
obligations underpinning the GSC arrangements.
Authorities should be able to identify the legal entities or persons responsible for the relevant activities
and to assess the ability of the GSC arrangement to implement corrective actions.
Authorities should have the ability to mitigate risks associated with, or prohibit the use of certain or
specific stablecoins in their jurisdictions, consistent with jurisdictions’ laws and regulations, where these
do not meet the applicable regulatory, supervisory, and oversight requirements.

3.2.

Comprehensive oversight of GSC activities and functions

The revisions to recommendation 2 are intended to identify wallets and trading services more
clearly, and clarify that custodial wallet service providers and trading platforms associated with
GSC activities should be subject to regulation, supervision and oversight.
Wallets and trading platforms provide critical services or functions for GSCs. The risks and
vulnerabilities associated with the provision of wallet services and operation of trading platforms
require that the providers should be subject to appropriate regulation, supervision and oversight.
The provision of wallet services to users of a stablecoin could be custodial or non-custodial (also
known as “hosted” or “un-hosted”). In a custodial wallet arrangement, a third-party intermediary
provides custody of the user’s private keys and/or crypto-assets. In this case, users do not need
to generate and store private keys themselves, and instead typically identify themselves by
logging into the intermediary’s platforms and instructing the intermediary on transactions to be
made, according to terms agreed.

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Non-custodial wallets refer to the methods which allow users to independently interact with a
blockchain and its services without the use of an intermediary. Non-custodial wallets can include
software or other “hot wallet” services a user would download and use on their own personal
devices, or “cold wallet” services such as a provider’s hardware. Non-custodial wallets allow
users to self-custody their digital assets and imply that only the users themselves can access or
recover their private keys.
Custodial wallet services create significant risks for stablecoin arrangements. These risks
include operational risk, as the failure or disruption of a custodial wallet provider could affect
stablecoin users’ availability, integrity or confidentiality of private keys, which in turn could lead
to malicious transfers, impaired access or economic loss. Sources of such instances of
operational risk can include cyber vulnerabilities or attack, fraud, outsourcing, wallet providers’
own infrastructure (including hardware and software) as well as related processes, third-party
and legal, amongst other potential risks.
Wallet services also generate reputational, financial, market integrity and consumer and investor
protection risk when custody is functional to the provision of a broader range of services.
Reputational risks can arise from a range of factors and result in the loss of trust in the
intermediary or software developer. For custodial intermediaries, reputational risks can rapidly
transform into financial risks (e.g. liquidity risk) with significant consequences on the stablecoin
arrangement. Financial risk may also stem from other activities which an intermediary performs
together with the custody of client’s private keys. Wallet services may also give rise to legal and
compliance risks. Because there is not a well-established bankruptcy regime for crypto-assets,
financial losses by custodial wallet providers could cause users to have their stablecoins become
part of the general bankruptcy estate of the provider rather than being segregated from the
bankruptcy estate.
Custodial wallets are often associated with centralised crypto-asset trading platforms, which
engage in many different types of activities, including issuing, trading, lending and borrowing of
stablecoins. In a number of important existing stablecoin arrangements (SAs), large
intermediaries operating on trading platforms play a key role in stabilising the value of the
stablecoin through issuance, redemptions and arbitrage trading strategies. Wallet providers that
engage in these additional activities could take substantial risks in other activities (e.g. leverage,
concentration, proprietary trading, self-dealing) that could jeopardise their critical role of storing
user’s private keys.
In addition, wallet providers, trading platforms and other crypto-asset intermediaries could create
greater tiering in the financial system, highlighting the need to consider the interdependency
between the standards applicable to wallets and intermediaries and those that apply to the rest
of the stablecoin arrangement (i.e., the issuer and transfer mechanism) to ensure there is no
inconsistency. For example, if wallet providers are undertaking some form of stablecoin issuance
themselves and providing “off-chain” transfers without sufficient standards and safeguards in
place, this could pose existential risks to the stablecoin arrangement and potentially wider risks
to the financial system. Indeed “internal off-chain” transactions of wallets in a single wallet
provider could under certain circumstances make the wallet provider itself an important
payments provider, closed-loop arrangement or payment system.

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FSB High-level recommendation 2
Authorities should apply comprehensive regulatory, supervisory and oversight requirements
consistent with international standards to GSC arrangements on a functional basis and
proportionate to their risks insofar as such requirements are consistent with their respective
mandates.
To promote a technology neutral approach that enables comprehensive oversight of GSC’s functions
and activities and mitigates regulatory arbitrage, authorities should focus on the functions performed by
the GSC arrangement and risks posed and apply the appropriate regulatory framework, consistent with
international standards, in the same manner as they would apply it to entities and persons performing
the same functions or activities, and posing the same risks (“same activity, same risk, same regulation”).
This includes the relevant regulation, standards and rules for e-money issuers, remittance companies,
financial market infrastructures including payment systems, collective investment schemes, and
deposit-taking and/or securities issuance and trading activities. This also includes market integrity,
consumer and investor protection arrangements, appropriate safeguards, such as pre- and post-trade
transparency obligations, rules on conflicts of interest (including for different service providers such as,
the reserve asset custodian, stablecoin trading, lending and borrowing platforms), disclosure
requirements, robust systems and controls for platforms where the GSC is traded, rules that allocate
responsibility in the event of unauthorised transactions and fraud, and rules governing the irrevocability
of a transfer orders (“settlement finality”).
Trading platforms and other intermediaries and service providers
Where a GSC arrangement relies on trading platforms or other intermediaries to perform critical
functions, including some or all of its stabilisation function, authorities should require that those
intermediaries fall within the regulatory, supervisory and oversight perimeter wherever possible.
Authorities should also seek to regulate and supervise custodial wallet service providers that provide
services related to GSCs to address operational, reputational, financial and market protection risks that
may arise from the storage of users’ private keys and tokens, and from the other activities that these
entities could perform. Regulations and oversight should strive to require the adequate safeguarding of
customer keys and tokens, including where appropriate segregation requirements. In considering
appropriate rules and policies, authorities should also consider the proportionate risks that the custodial
wallet service providers pose based on the size of and functions performed by the service providers.
Review of existing regulatory, supervisory and oversight requirements
Authorities should assess whether existing regulatory, supervisory and oversight requirements
adequately address the risks of GSC functions and activities and consider the potential effects of
requirements not applying to aspects of a GSC arrangement. Authorities should, if necessary or
appropriate, clarify or supplement financial regulations if existing regulations may not adequately
capture the risks of GSC functions and activities, and develop and implement regulations to address
uncaptured risks.

3.3.

Cross-border cooperation, coordination and information sharing

Cooperation and coordination among relevant authorities, both domestically and internationally,
can help to ensure GSCs are regulated, supervised and overseen in a comprehensive manner
rather than in a piecemeal fashion based on individual functions and activities or geographies.
Given potentially different jurisdictional approaches to the regulation, supervision and oversight
of stablecoin arrangements, it is important for cooperation to support participating authorities in
fulfilling their respective regulatory, supervisory and oversight mandates.

13

No material changes are proposed to High-level recommendation 3. A proposed new Annex
“Key design considerations for establishing cooperation arrangements for GSCs” provides more
granular guidance for implementing High-level recommendation 3, in particular on the structure
and composition of cooperation arrangements.
FSB High-level recommendation 3
Authorities should cooperate and coordinate with each other, both domestically and
internationally, to foster efficient and effective communication, information sharing and
consultation in order to support each other in fulfilling their respective mandates and to ensure
comprehensive regulation, supervision, and oversight of a GSC arrangement across borders
and sectors.
Cooperation arrangements should be flexible, effective, efficient, inclusive, and multi-sectoral, and take
into account the complexity and the potential evolution of the GSC arrangement and the risks it poses
over time. They may take different forms (e.g. supervisory colleges, fora, networks, memoranda of
understanding (MoUs), and ad-hoc arrangements). They should also consider the distinctive nature of
GSC arrangements as usually consisting of multiple and oftentimes unrelated entities that interact and
have varying roles and responsibilities.
Cooperation arrangements may be underpinned by bilateral and/or multilateral MoUs for cooperation
and information sharing, and for crisis management and resolution, and complemented with
mechanisms with a single focus, e.g. regarding AML/CFT or cyber security. These arrangements should
also consider the potential need to seek cooperation from authorities in other jurisdictions to achieve
regulatory objectives, e.g. in implementing recovery and resolution plans, or halting activities based in
one jurisdiction having an adverse impact in another.
Authorities should consider a requirement that the arrangement takes into account the interests of each
of the jurisdictions and sectors in which the GSC arrangements may be operating or seeking to operate,
jurisdictions where the governance body, the providers of the GSC functions and activities and the GSC
arrangement’s users are located, where (spill over) risks reside, and the potentially differing impacts of
GSC arrangements across jurisdictions and between advanced economies (AEs) and emerging market
and developing economies (EMDEs).
In establishing cooperation arrangements, authorities should consider to take into account the “Key
design considerations for establishing cooperation arrangements for GSCs” set out in Section 4.2.

3.4.

Governance structures and decentralised operations

Decentralised governance structures may make it difficult to apply relevant policies and
standards effectively and to identify entities and persons that can be held accountable for their
effective implementation. These challenges affect both decentralised governance structures of
a particular SA (e.g. increased complexity and opaqueness based on the use of governance
tokens, or consensus decision-making), and distributed business infrastructures where multiple
functions are carried out by separate and independent actors (e.g. issuance is separate from
operating the infrastructure). SAs that operate on public blockchains also raise unique
governance challenges given their limited ability to identify and control users and activity on the
blockchain, to monitor and implement required controls, or to prevent undesirable consensus
driven changes in the protocols through hard forks.
The proposed revisions to Recommendation 4 are intended to make clear that GSC operating
structures must be set up in such a way that they do not impede the effective application of
relevant regulations and standards, consistent with the FSB high-level recommendations.

14

FSB High-level recommendation 4
Authorities should require that GSC arrangements have in place a comprehensive governance
framework with clear and direct lines of responsibility and accountability for all functions and
activities within the GSC arrangement.
An adequate governance framework consistent with relevant international standards should be required
for the entire network of GSC activities, functions and participants, given each part of the network can
affect the other parts. GSC arrangements may vary in the degree of decentralisation of their governance
design, but authorities should require that the ownership structure, governance and operation do not
impede the effective application of relevant regulations and standards, consistent with the FSB Highlevel Recommendations. In particular, authorities should require that GSC issuance be governed and
operated by one or more identifiable and responsible legal entities or individuals (‘governance body’).
The governance structure should allow for timely human intervention, as and when needed or
appropriate. Fully permissionless ledgers or similar mechanisms could pose particular challenges to
the accountability, and governance and authorities should ensure that appropriate regulatory,
supervisory and oversight requirements be effectively applied to such arrangements.
The governance structures and accountabilities should have a sound legal basis and be clear,
transparent, and disclosed to users, investors, and other stakeholders. The governance body of a GSC
should disclose how governance and accountability is allocated and how potential conflicts of interest
are addressed among different entities within the GSC arrangement and in different jurisdictions, as
well as clarify the limits of accountability and legal liability in any one jurisdiction. These disclosures
should cover all functions and activities of the GSC arrangement, including but not limited to, setting
rules and standards for participants of the arrangement, issuing stablecoins, operating the stabilisation
mechanism, in particular the investing of the reserve assets as appropriate, providing the custody or
trust services for reserve assets, and providing user-facing services such as exchanges and wallets.
Where a GSC arrangement relies on a third-party, including automated processes and algorithmic
protocols (see recommendation 9 regarding the use of algorithmic protocols as a stabilisation
mechanism), the GSC governance body should provide a comprehensive assessment and disclosure
of how its reliance on the third-party does not impede its ability to meet regulatory requirements and
expectations for performance, resilience, security, development and maintenance, and regulatory
compliance.

3.5.

Risk management

Recommendation 5 focuses on the need for effective risk management frameworks. The revised
recommendation highlights the need for liquidity risk management to support an effective
stabilisation mechanism, consistent with recommendation 9; and anti-money laundering and
combating the financing of terrorism (AML/CFT) procedures for transactions from and to unhosted wallets given the heightened legal and compliance risks of these transactions and the
potential financial stability implications for GSCs that are disrupted or undermined by fraudulent
and manipulative activities.
FSB High-level recommendation 5
Authorities should require that GSC arrangements have effective risk management frameworks
in place especially with regard to operational resilience, cyber security safeguards and AML/CFT
measures, as well as “fit and proper” requirements, if applicable, and consistent with
jurisdictions’ laws and regulations.
Authorities should require that GSC arrangements have in place policies that set out how all functions
and activities within the GSC arrangement are subject to risk management measures that are

15

appropriate to and commensurate with the specific risks that GSC arrangements may pose. If the risk
from the fluctuation in the value of the underlying assets is borne, partially or totally by the GSC operator,
the relevant prudential framework (e.g. market risk framework) should be applied to the GSC operator.
Authorities should require that GSC arrangements conduct proper due diligence (for example, by
applying ‘fit and proper’ standards, where applicable) into individuals involved in the management and
control of the GSC arrangement, as well as those who exercise significant power or discharge
significant responsibilities in relation to GSC activities.
Authorities should require that GSC arrangements have in place policies that address heightened risks
for GSC arrangements, such as operational risks (including fraud and cyber risks), compliance risk
(including money laundering/terrorist financing risks), and provide for appropriate consumer and
investor protection, in line with legal obligations in jurisdictions where a GSC arrangement operates.
Risk management measures and technical standards should cover relevant activities performed by
providers of activities in the GSC arrangements, paying particular attention to compliance by
permissionless or anonymous networks. Accordingly, authorities should ensure that GSC arrangements
put appropriate AML/CFT measures in place consistent with FATF Standards, including requirements
to comply with the FATF ‘travel rule’, with specific consideration if the GSC arrangements allow peerto-peer transactions by unhosted wallets.
Authorities should require that GSC arrangements conduct continuous risk assessments, contingency
preparedness, and continuity planning. Authorities should require that GSC arrangements conduct a
robust assessment of how their technology model and the rules for transferring stablecoins or relevant
assets provide assurance of settlement finality.
In addition to prudential requirements set forth in recommendation 9, authorities should require GSC
arrangements to have comprehensive liquidity risk management practices and contingency funding
plans that clearly set out the strategies and tools for addressing large number of redemptions i.e., run
scenarios, and are regularly tested and operationally robust. The GSC arrangement should also have
robust capabilities to measure, monitor and control funding and liquidity risks, including liquidity stress
testing.

3.6.

Data storage and access to data

Recommendation 6 stresses the need for robust systems for collecting, storing and safeguarding
data. The proposed revision stresses the need for authorities to have access to relevant data for
supervisory, examination, and regulatory purposes wherever the data is located, including in
circumstances where the data is stored in a foreign jurisdiction. In addition, effective cooperation
and information sharing arrangements, as provided for in Recommendation 3, can provide for
the sharing of such data among or between authorities.
FSB High-level recommendation 6
Authorities should require that GSC arrangements have in place robust systems and processes
for collecting, storing and safeguarding data.
GSC arrangements should implement and operate data management systems that record and
safeguard in a discoverable format relevant data and information collected and produced in the course
of their operations, while conforming to all applicable data privacy requirements. Adequate controls
should be in place to safeguard the integrity and security of both on-chain and off-chain data and
conform to applicable data protection regulation.
Authorities should be able to obtain timely and complete access to relevant data and information related
to the GSC, wherever the data is located, to enable them to implement adequate regulatory,

16

supervisory, and oversight approaches that capture the functions and activities of the GSC
arrangement, in accordance with the level and nature of the risks posed.

3.7.

Recovery and resolution of GSC

No changes are proposed to High-level recommendation 7 that provides that GSC arrangements
should have in place recovery and resolution plans. However, members consider effective
recovery and resolution planning important given that it may not be clear how a failing GSC
arrangement and its component parts be wound down or resolved under existing legal
frameworks.
FSB High-level recommendation 7
Authorities should require that GSC arrangements have appropriate recovery and resolution
plans.
Authorities should require that GSC arrangements have in place appropriate planning to support an
orderly wind-down or resolution under the applicable legal (or insolvency) frameworks, including
continuity or recovery of any critical functions and activities within the GSC arrangement.
Authorities should consider how such plans are implemented through effective contractual obligations
among the entities in the GSC network, and address the potential involvement of authorities in all of the
jurisdictions in which the entities operate.

3.8.

Disclosures

Public disclosures—regarding, for example, information to assess the credibility and
effectiveness of a GSC’s stabilisation mechanism—help strengthen market discipline and
protect users. The recommendation has been revised to include more specificity on the
disclosure of information related to redemption rights and the composition of reserves.
The revised recommendation 8 and the Section 4.3 also seek to promote consistency of
disclosures by identifying types of information that should be disclosed by GSC arrangements.
FSB High-level recommendation 8
Authorities should require that GSC issuers provide all users and relevant stakeholders with
comprehensive and transparent information to understand the functioning of the GSC
arrangement, including with respect to governance framework, redemption rights and its
stabilisation mechanism.
Features of GSC arrangements that should be transparent to all users and relevant stakeholders
include: the governance structure of the GSC arrangement; the allocation of roles and responsibilities
assigned to operators or service providers within the GSC arrangement; the operation of the
stabilisation mechanism; the composition of and investment mandate for the reserve assets (see
Section 4.3 for common disclosure templates for reserve assets, which may be used by any stablecoin
arrangement if there are no specific supervisory disclosure requirements applicable to the GSC); the
custody arrangement and applicable segregation of reserve assets; available dispute resolution
mechanisms or procedures for seeking redress or lodging complaints, as well as information on risk
relevant for users.

17

Authorities should require that GSC issuers make appropriate disclosures to users and the market
regarding the design of the stabilisation mechanism. Disclosures should also include details on the
redemption rights of users and the redemption process.
The nature of these disclosures for all of the information (including the disclosure template in Section
4.3) will depend in part on the regulatory framework the issuer is operating under (e.g. whether the
issuer is already subject to comprehensive supervision and regulation and disclosure requirements,
e.g. as a bank and/or issuer of securities, etc.).
Information to be disclosed to users and relevant stakeholders should include the amount of GSC in
circulation and the value and the composition of the assets in the reserve backing the GSC and should
be subject to regular independent audits. Other information relevant to the functioning of the GSC
arrangement, such as e.g. a list of available exchange platforms or wallet providers, should be made
available on a regular basis, as appropriate.
Authorities should require GSC arrangements to have mechanisms to ensure the protection of the
interests of users and counterparties, when a potential modification of the arrangement could have a
material effect on the value, stability, or risk of the GSC.

3.9.

Redemption rights, stabilisation, and prudential requirements

Stablecoins that promise to maintain a stable value relative to one or several fiat currencies (socalled fiat-referenced stablecoins), are of particular sensitivity as the reference to fiat currencies
may enhance or facilitate their usability as a means of payment and/or store of value. All users
of fiat-referenced GSCs must have the confidence that their GSC holdings are redeemable in a
timely manner at the reference value, and for single fiat-currency based GSCs, at par into fiat.
Any legal claim that does not guarantee to all users timely redemption at par into fiat for single
fiat-currency based GSCs increases the vulnerability of the GSC to a loss of confidence and
associated funding and liquidity risks, which could in turn heighten the prospects for systemic
risk.
Redemption rights are addressed in the existing Recommendation 9, which states that
authorities should ensure that GSC arrangements “provide legal clarity to users on the nature
and enforceability of any redemption rights and the process for redemption, where applicable.”
It is proposed that this recommendation be strengthened to specify that GSC issuers should
guarantee clear redemption rights, effective stabilisation mechanisms and adequate capital
buffers to absorb credit and market risks, as well as risks related to legal, operational and cyber
risks relevant to the stablecoin arrangement. An issuer’s failure to back up its promise of a stable
value and timely redemption could cause GSC users to lose confidence in the stabilisation
mechanism, leading to a run on the stablecoin.
The sudden loss of confidence in private sector issued commercial bank deposits, and in other
private sector issued financial instruments that promise (implicitly or explicitly) to maintain a
stable value with fiat currency, is a longstanding risk in the history of banking and finance. Runs
can threaten the safety and soundness of individual banks but also lead to a more generalised
loss of confidence in deposits and other liabilities of other banks. Such contagion can generate
system-wide stress as evidenced by the 2007-09 financial crisis. Runs on other institutions can
pose similar financial stability risks, such as the runs faced by money market funds in 2008 and
2020. Because stablecoins engage in similar maturity transformation, they are similar in their

18

susceptibility to a sudden loss in confidence and the risk of a run on the issuer or underlying
assets.
Uncertainty about, or large fluctuations in, the value of instruments being used as settlement
assets in systemic payment or securities settlement systems could give rise to risks to financial
stability associated with the operational or financial failure of the payment or settlement system
itself. The regulation of financial market infrastructures therefore generally restricts settlement
instruments to those issued by central banks or a commercial bank with little or no credit and
liquidity risk. Therefore, GSCs should be expected to meet stricter requirements on the issuance,
redemption and stabilisation functions to ensure the stablecoin has little or no credit or liquidity
risk. This is in line with the CPMI-IOSCO Principles for Financial Market Infrastructures,
specifically key consideration 2 of Principle 9 on money settlements, which states that if central
bank money is not used, an FMI should conduct its money settlements using a settlement asset
with little or no credit or liquidity risk. 5
There may be potential regulatory gaps if a stablecoin used widely for payments is issued by an
entity that is neither a bank nor an FMI, notwithstanding the fact that such stablecoin may also
be considered a security and/or derivative. For example, international standards on prudential
requirements, including on clear and enforceable redemption rights, and on reserve assets could
potentially not apply to these issuers and/or not be effectively enforced. Such a stablecoin could
nevertheless over time become systemic. Against this background, the CPMI-IOSCO guidance
on the application of the PFMI to stablecoin arrangements (SAs) clarifies that the so-called
“transfer function” (i.e., the transfer of coins) of systemic stablecoin arrangements is an FMI
function. As such, when a stablecoin arrangement performs a transfer function and is determined
by authorities to be a systemically important FMI, the stablecoin arrangement as a whole would
be expected to observe all relevant principles in the PFMI. The guidance provides that a
systemically important stablecoin arrangement should regularly review the material risks that the
FMI function bears from and poses to other functions within the stablecoin arrangement and the
entities performing those functions, including the issuance function. The guidance includes
ensuring that a systemically important stablecoin arrangement meets Principle 9 on Money
Settlements. 6
For issuers that are subject to prudential regulation (e.g. commercial banks), there may
nonetheless be a lack of clarity or completeness in the treatment of financial (i.e., market, credit
and liquidity risk) and operational risks (e.g. smart contract risk, choice of blockchain, etc.) that
arise from stablecoin arrangements, as well as redemption rights. Nevertheless, stablecoins
issued by a bank subject to BCBS standards could, in certain cases, provide a claim and
protections equivalent to deposits, including capital and liquidity requirements and a backstop
mechanism, which may contribute to addressing the risk of runs. However, banks could also
issue stablecoins as non-deposit liabilities, or from an entity or vehicle off-balance-sheet. Just
as is the case for non-bank issued stablecoins, there may be a lack of clarity on the regulatory
treatment of bank-issued stablecoins (e.g. with respect to redemption rights and safeguarding

5
6

See https://www.bis.org/cpmi/publ/d206.htm
The CPMI-IOSCO guidance clarifies that the stablecoin arrangement, in assessing the risks of the stablecoin used as the
settlement asset, should consider relevant factors such as providing holders with a direct legal claim on, title to or interest in the
issuer and/or claim on the underlying reserve assets for timely convertibility at par into other liquid assets, such as claims on a
central bank and a clear and robust process for fulfilling holders’ claims in both normal and stressed times.

19

of the reserve assets), and existing prudential requirements may not be sufficient to address the
risks of runs.
FSB High-level recommendation 9
Authorities should require that GSC arrangements provide a robust legal claim to all users
against the issuer and/or underlying reserve assets and guarantee timely redemption. For GSCs
referenced to a single fiat currency, redemption should be at par into fiat. To maintain a stable
value at all times and mitigate the risks of runs, authorities should require GSC arrangements
to have an effective stabilisation mechanism, clear redemption rights and meet prudential
requirements.
Redemption
Authorities should require GSC arrangements to provide a robust legal claim and timely redemption to
all users over a time period that is consistent with the treatment for other payment and settlement
assets. Redemption requests should be processed without undue costs for the user. In particular, the
issuer should ensure that GSC users’ redemption should not be unduly compromised by the disruption
or failure of an intermediary or other relevant entity and infrastructure (e.g. through contractual or
operational processes that allow for prompt redemption with the issuer directly in the event of an
intermediary becoming unavailable).
The GSC arrangement should also provide adequate information on the process for redemption and
the enforcement of GSC users’ claims, and regarding how the GSC arrangement ensures smooth
execution of the redemption process, including under stressed circumstances. GSC arrangements
should not impose conditions that may unduly restrict the ability of GSC users to exercise their
redemption rights (e.g. minimum thresholds). Any fees for redemption should be clearly communicated
to users and should be proportionate, and not be high enough to become a de facto deterrent to
redemption.
Stabilisation mechanism
Authorities should require GSCs to have an effective method to maintain a stable value at all times (a
stabilisation method). An effective stabilisation method should include a reserve of assets that is at least
equal to the amount of outstanding stablecoins in circulation at all times, unless the GSC is subject to
prudential requirements and safeguards equivalent to those applicable to commercial bank money
subject to BCBS standards. A GSC should not rely on arbitrage activities to maintain a stable value at
all times and it should not derive its value from algorithms.
For GSCs that use a reserve-based stabilisation method, authorities should ensure that there are robust
requirements for the composition of reserve assets consisting only of conservative, high quality and
highly liquid assets. Authorities should consider limitations to the reserve that would exclude speculative
and volatile assets as well as assets where there is insufficient historical evidence and data of quality
and liquidity, as is likely to be the case for crypto-assets. Due to the potential risk of fire sales of reserve
assets, there should be particular attention to the nature, sufficiency and degree of risk-taking in terms
of duration, credit quality, liquidity and concentration of a GSC’s reserve assets. Reserve assets should
be unencumbered and easily and immediately convertible into fiat currency at little or no loss of value.
The market value of reserve assets should meet or exceed the amount of outstanding claims or
stablecoins in circulation at all times. In addition, risks of custodial arrangements for reserve assets
should also be adequately managed and addressed. In particular, GSC issuers should consider the
credit risk of their custody service providers to minimise the risk of loss, and disruptions to access to
the reserve assets.
GSC issuers that back the value of outstanding stablecoins with assets other than conservative, high
quality and highly liquid assets must be subject to adequate prudential regulations and oversight

20

equivalent to BCBS standards and deliver similar protections to commercial bank money to mitigate the
risks of runs.
Prudential requirements
In order to have effective stabilisation methods, GSC arrangements should also be subject to
appropriate prudential requirements (including capital and liquidity requirements) to provide that losses
can be absorbed and there is sufficient liquidity to deal with outflows. Prudential requirements should
take into account the risks of the reserve assets and operational risks (amongst other risks). Adequate
capital buffers also contribute to maintaining confidence in the GSC and a stable value at all times.
Such capital buffers should be consistent with the size of the GSC in circulation and proportionate to
the risks of GSC arrangement.

3.10. Conformance with regulatory, supervisory and oversight
requirements before commencing operations
As stated in the FSB Statement on International Regulation and Supervision of Crypto-asset
Activities, even as jurisdictions are in the process of considering potential changes to their
frameworks, neither stablecoins nor other crypto-assets operate in a regulation-free space and
must adhere to relevant existing requirements and applicable regulations. Crypto-assets and
markets may perform equivalent economic functions to those performed by traditional financial
instruments and intermediaries. As such, they are subject to relevant regulations applicable to
their underlying economic and financial rationale, in line with the principle of “same activity, same
risk, same regulation”. It is proposed to revise recommendation 10 to ensure GSC arrangements
meet requirements specific to crypto-assets as well as more general requirements before
commencing operations.
FSB High-level recommendation 10
Authorities should require that GSC arrangements meet all applicable regulatory, supervisory
and oversight requirements of a particular jurisdiction before commencing any operations in
that jurisdiction and adapt to new regulatory requirements as necessary and as appropriate.
Authorities should not permit the operation of a GSC arrangement in their jurisdiction unless the GSC
arrangement meets all of their jurisdiction’s regulatory, supervisory, and oversight requirements,
including affirmative approval (e.g. licenses or registrations) where such a mechanism is in place. That
includes requirements specific to crypto-assets as well as those general requirements (including
consumer and investor protection regulation) that are applicable to the underlying economic and
financial nature of crypto-assets, in line with the principle of “same activity, same risk, same regulation.”
Where relevant, GSC arrangements should have the ability to adjust their operational features,
processes and mechanisms as necessary or appropriate to maintain compliance with applicable
regulatory requirements, consistent with international standards, if these evolve or change.
Before launching the arrangement and the provision of services to users in a particular jurisdiction,
entities and individuals involved in the management and control of the GSC arrangement should
understand applicable regulatory requirements. Where regulations of more than one jurisdiction may
apply, understand which jurisdictions’ rules are applicable to different aspects of the functions and
activities performed and engage proactively with authorities.

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Annex 1: Key design considerations for cooperation and
information sharing arrangements
There are different possible structures for cross-sectoral and cross-jurisdictional cooperation
arrangements. The choice of structure should be tailored to the specific features of the stablecoin
arrangement (e.g. risk profile, systemic footprint, level of interest of the relevant authorities).
Those features may evolve or change over time, which may lead relevant authorities to consider
whether and how the cooperation arrangement should be adapted. The following considerations
are intended to inform a suitable structure for an effective cooperation arrangement while
allowing for flexibility to accommodate the specificities of GSC.

Objective
The authorities that participate in the cooperation arrangement should have a common
understanding of the objective of the arrangement.
The cooperation arrangement could be for information-sharing only or to facilitate coordinated
decision-making or supervision on important matters such as authorisation or approval of
material design changes, or to support the effective monitoring and enforcement of all applicable
regulatory, supervisory and oversight requirements in each authority’s jurisdiction, as
contemplated in Recommendation 10.
Information-sharing arrangements could be beneficial if the objective of cooperation is to ensure
all relevant authorities, on a cross-border and cross-sectoral basis have a common
understanding of the functions, structure, operations, and risks of the GSC arrangement. These
types of arrangements could be relevant for stablecoins which are not yet systemic but have the
potential to become so at some stage in the future. Such structures would enable early
involvement of authorities and facilitate decisions later that anticipate systemic potential.
Coordinating decision making could be explored through such cooperation arrangements for
larger or more systemic GSCs where cooperation with respect to regulatory and supervisory
decisions would be appropriate, and regulatory arbitrage is a key risk. For example, these
arrangements could follow the spirit of PFMI Responsibility E which describes how authorities
should cooperate with each other, both domestically and internationally, as appropriate and in a
flexible manner, in promoting the safety and efficiency of FMIs. 7

Structure and participation
Authorities should identify the structure and participation to achieve the stated objective
of the cooperation.
The authorities involved in a cooperation arrangement should be the competent authorities that
bear the responsibility for the regulation, supervision and/or oversight of the stablecoin

7

Cooperation arrangements between authorities in no way prejudice the statutory or legal or other powers of each participating
authority, nor do these arrangements constrain in any way an authority’s powers to fulfil its statutory or legislative mandate or
its discretion to act in accordance with those powers.

22

arrangement, as well as the central banks of issue for fiat-referenced GSCs. Other relevant
bodies (such as non-financial authorities) could also be involved, for information and consultation
purposes. The competent authorities could be the ones responsible for one or more key
functions of the GSC arrangements, such as governance, issuance, redemption, stabilisation,
and the transfer functions. A cooperation arrangement should provide some flexibility to deal
with scenarios where authorities face challenges in identifying competent and relevant
authorities. Depending on the jurisdiction and/or type of licensing regime, the competent
authorities could be a banking supervisor, securities or market regulator, or FMI/payment
supervisor. Competent authorities can involve a combination of such authorities, as is the case
already for traditional FMIs such as CCPs for example.
The cooperation arrangements could include different categories of membership considering: (i)
the role and mandate of relevant authorities, including non-financial regulatory authorities; (ii)
criteria to choose members of each category; (iii) considerations for inviting non-financial sector
authorities; and (iv) ways to identify competent authorities in case no responsible entity is
identified for one or more core function(s) of the GSC arrangement.
The footprint or materiality of the GSC across different jurisdictions, including when a GSC is
under development or at an early stage, could impact the relevant authorities of the cooperation
arrangement. There may also be differences in the level of activity for each jurisdiction the GSC
arrangement operates in, including the possibility that the SC is not systemic in some of the
jurisdictions with responsibility for the oversight and supervision of the GSC, while it could be
systemically important in other jurisdictions. The membership should also consider the unique
foreign exchange and capital account requirements facing emerging market jurisdictions if the
GSC were to be widely used as a means of payment.
The possibility that the GSC will evolve or change, including by relocating core functions from
one jurisdiction to another, may require a changing of the authorities with oversight and
supervisory responsibilities. Given the ease with which GSC arrangements may change location
of key functions, a cooperation arrangement should account for such a process in order to avoid
any gaps in this respect.

Confidentiality and legal constraints
It is important that cross-jurisdictional cooperation is underpinned by effective informationsharing gateways and confidentiality and other safeguards to facilitate the exchange of
information across borders and collective or combined risk assessment among the relevant
supervisory and regulatory authorities. Information-sharing gateways and confidentiality and
other safeguards could be established through the development and use of a multilateral
information-sharing arrangement among authorities. Such arrangement could be informed by
existing international standards and guidance, including the PFMI Responsibility E and the 2010
IOSCO Principles Regarding Cross-Border Supervisory Cooperation. Alternatively, members of
the cooperation arrangement may rely on bilateral information-sharing arrangements between
authorities. To the extent that the stablecoin activities fall within the existing regulatory perimeter
authorities may be able to rely on existing information-sharing arrangements, which may not
extend to other sectoral authorities or non-financial authorities, but could be adapted to their
needs.

23

Annex 2: Template for common disclosure of reserve assets
This template is designed as a common disclosure template for reserve-backed GSCs. This
template is meant as a model for authorities seeking to supplement existing disclosure
requirements or adopt new disclosure requirements. A common disclosure framework on the
composition of and investment mandate for the reserve assets would help market participants
consistently assess and compare the quality of the reserve portfolio and the GSC arrangement’s
ability to maintain redemption at par at all times. The template should not be interpreted as
endorsing the inclusion of particular asset classes in the reserve portfolio, but only as illustrating
the level of detail in which assets should be disclosed to investors.
In addition to the categories listed below, the following should apply to all eligible assets included
in the disclosure of reserve assets:
■

Eligible assets must be unencumbered, meaning the assets are free of legal, regulatory,
contractual, or other restrictions on the ability of the GSC arrangements to liquidate,
sell, transfer, or assign the asset.

■

Eligible assets should exclude unencumbered assets which the GSC arrangements
does not have the operational capability to monetise to meet redemptions, including
during periods of stress.

■

Eligible assets should be under the control of the function charged with managing the
reserve assets, meaning the function has the continuous authority, and legal and
operational capability, to monetise any asset in the reserve.

GSC arrangements should report both the market value as of the reporting period as well as the
daily average over the most recent quarter. The daily average should be presented as the simple
average of daily observations.

Illustrative asset categories 8

8

1

Demand deposits at commercial banks

2

Term deposits at commercial banks

3

Money market fund shares

4

Reverse repo (collateralized by
government bills, bonds, or notes)

5

Government bills

6

Government bonds and notes

…

[…]

Market
value at
month end

Weighted
average
maturity

Market Value
(daily average
over month-end)

These asset categories are for illustrative purposes only. Relevant asset categories should be consistent with the requirements
for reserve assets in each jurisdiction.

24

Illustrative asset categories 8
7
8

9

Market
value at
month end

Weighted
average
maturity

Market Value
(daily average
over month-end)

Other assets 9
Of which, loans or extensions
of credit to entities affiliated
with the GSC

9

Total assets of reserve portfolio

10

Total stablecoins in circulation

Other assets should include information that is relevant for assessing and evaluating the quality of those assets, including for
example the asset class, issuer, credit rating and maturity of each instrument.

25

Annex 3: Potential elements that could be used to determine
whether a stablecoin qualifies as a GSC
A stablecoin’s global systemic importance could be measured in terms of the impact that a
stablecoin arrangement’s financial or operational disruptions, or failure, can have on cryptoasset markets, the global financial system and the wider economy.
Given that a stablecoin may be used as a means of payment or store of value, and could be
used in multiple jurisdictions, the criteria to be considered in determining whether a stablecoin
qualifies as a GSC should take into account the potential uses in multiple jurisdictions.
The potential elements set out below that could be used to determine whether a stablecoin
qualifies as a GSC build on the criteria that are often considered in determining the need for or
degree of regulation, supervision, and oversight of FMIs (PFMI, 2012, also supplemented by
guidance on the Application of the PFMI to stablecoin arrangements, issued in 2022), and global
systemically important banks (BCBS, 2013). They include factors and considerations for
authorities to determine whether a stablecoin has the potential to expand reach and adoption
across multiple jurisdictions and has the potential to achieve substantial volume. Such potential
elements are:
■

Number and type of stablecoin users

■

Number and value of transactions

■

Size of reserve assets

■

Value of stablecoins in circulation

■

Market share in cross-border use in payments and remittances

■

Number of jurisdictions with stablecoin users

■

Market share in payments in each jurisdiction

■

Redemption linked to a foreign currency or multiple currencies

■

Interconnectedness with financial institutions and the broader economy,

■

Interconnectedness with the wider crypto-assets ecosystem, other crypto-asset
services and decentralised finance

■

Integration with digital services or platforms (e.g. social networks, messaging
applications)

■

Available alternatives to using the GSC as a means of payment at short notice

■

Business, structural and operational complexity

26

Annex 4: Recent policy developments
Jurisdictions
The European Union
The European Union has recently reached political agreement on legislation establishing a
framework for Markets in Crypto Assets 10, which among other objectives strengthens the
regulatory framework for so-called stablecoins which are classified either as E-Money tokens
(single currency tokens) or as Asset Referenced tokens (multiple currency and other asset
referenced tokens). The legislation is intended to implement the FSB High-level
Recommendations, and is expected to apply as of 2024, subject to formal finalisation of the
adoption procedure. Until that time, existing rules, including in particular national legislation
implementing the E-Money Directive, apply.

Hong Kong SAR
In January 2022, the Hong Kong Monetary Authority (HKMA) issued a discussion paper 11 on
crypto-assets and stablecoins, setting out the HKMA’s thinking on the regulatory approach for
payment-related stablecoins and inviting views from the industry and public. Among other things,
the discussion paper sought feedback via a list of Q&As on issues such as the appropriate
regulatory approach, the types of activities that should fall under the regulatory ambit, the
relevant authorisation and regulatory requirements, the scope of persons to be regulated, and
areas of possible regulatory overlap.
The proposed regulatory approach has taken into account the fast-evolving nature of cryptoassets globally and locally, the possible risks that they may pose to financial stability, monetary
stability, anti-money laundering/combating financing of terrorism (“AML/CFT”), users protection
and other areas, the international recommendations and the need for continued support of
financial innovation.
The consultation period ended in March 2022. The HKMA is analysing the feedback received
and will announce the next steps in due course. The HKMA will closely monitor the evolving
landscape, stay open-minded and remain agile in drawing up the details of the regulatory
framework for payment-related stablecoins.
In addition, in July 2022, the Anti-Money Laundering and Counter-Terrorist Financing
(Amendment) Bill was introduced into the Legislative Council for the implementation of a virtual
asset service provider (VASP) licensing regime for crypto-asset activities conducted on
exchanges. The amendment bill provides that any person seeking to operate a virtual asset
exchange as a business is required to obtain a VASP licence from the Securities and Futures
Commission (SFC). According to the version of the Bill that was introduced to the Legislative

10
11

Available here.
Available here.

27

Council, the definition of “virtual asset” applies equally to virtual coins that are stable (i.e.,
stablecoins) or not.
The HKMA will continue to collaborate with other relevant regulators as well as other
stakeholders of the HKSAR Government on formulating appropriate regulatory responses to
address evolving risks posed by stablecoins.

Japan
In June 2022, Japan passed legislation that defines the legal status of stablecoins and introduces
a regulatory framework for them by amending the Payment Services Act and other relevant laws
to promote financial innovation and to ensure user protection and AML/CFT compliance. This
new regulatory framework will come into force by June 2023.
The new regulatory framework defines “digital-money type stablecoins,” which are linked to one
or more fiat currencies and whose issuers promise redemption at par. These stablecoins are
required to meet higher standards of regulatory requirements so that user protection is ensured
and risks to financial stability are fully addressed.
To this end, issuers of digital-money type stablecoins are restricted to banks, fund transfer
service providers, and trust companies as these institutions are under stringent regulations.
Each of these institutions is subject to requirements to ensure redemption, as follows:
(i)

Banks issue stablecoins as deposits. They are already subject to prudential regulations
and stablecoin holders are protected by deposit insurance in the same manner as
conventional bank deposits;

(ii) Fund transfer service providers issue stablecoins as claims on outstanding obligations.
They are required to secure the obligation through either money deposits with official
depositaries, bank guarantees, or entrusted safe assets (such as bank deposits and
government bonds);
(iii) Trust companies issue stablecoins as trust beneficiary rights. They are required to hold
all the trusted assets in the form of bank deposits.
On the other hand, stablecoins other than digital-money type stablecoins are regulated in the
same manner as unbacked crypto-assets or security tokens under the existing regulatory
frameworks in accordance with their product structures. However, the Financial Services Agency
of Japan (the “JFSA”) may designate this type of stablecoins as digital-money type stablecoins
in case they are widely used as a means of payment.
For intermediaries of digital-money type stablecoins (“Intermediaries”) such as those involved in
trading and exchanging stablecoins, they do not have to meet regulatory requirements for
issuers. However, registration with the government is required and AML/CFT compliance is
necessary as they play a critical role in stablecoin arrangements. Registered Intermediaries are
required to ensure appropriate user protection including protecting users’ assets and providing
sufficient information to users. In particular, they are required not to provide services related to
stablecoins that lack sufficient levels of user protection and to enter into contractual agreements

28

with issuers for sharing of liability for users’ losses to ensure proper coordination between the
issuers and the Intermediaries in case of accidents.
Toward enforcement of the amended laws by June 2023, the JFSA will draft relevant regulations
and guidelines, including issues of peer-to-peer transactions and risks associated with network
system failures or accidents, taking into consideration international discussions.

United States
The President’s Working Group on Financial Markets, Federal Deposit Insurance Corporation,
and Office of the Comptroller of the Currency published a report on stablecoins on November 1,
2021, to identify regulatory gaps related to stablecoins with the potential to be used as a means
of payment and to present recommendations for addressing those gaps. The report outlines the
risks that stablecoins pose and a legislative recommendation for Congress.
Risks. Failure of stablecoins to maintain a stable value could expose stablecoin users to
unexpected losses and lead to stablecoin runs that damage financial stability. Disruptions to the
payment chain that allow stablecoins to be transferred among users could lead to a loss of
payments efficiency and, depending on the extent to which stablecoins are used, undermine
functioning in the broader economy. The potential for stablecoin arrangements to rapidly scale
raises additional issues related to systemic risk and concentration of economic power.
Stablecoins also pose illicit finance concerns and risks to financial integrity. Further, digital asset
trading activities present risks related to market integrity and investor protection.
Recommendations. There are key gaps in prudential authority over stablecoins used for
payments purposes. To address these risks, the agencies recommend that Congress act
promptly to enact legislation to ensure that payment stablecoins are subject to a federal
prudential framework on a consistent and comprehensive basis.
To address risks to stablecoin users and guard against stablecoin runs, legislation should
require stablecoin issuers to be insured depository institutions subject to appropriate
supervision and regulation, at the depository institution and the holding company level.
■

To address concerns about payment system risk, in addition to the requirements
for stablecoin issuers, legislation should require custodial wallet providers to be subject
to appropriate federal oversight, and should provide the federal supervisor of a
stablecoin issuer with the authority to require any entity that performs activities that are
critical to the functioning of the stablecoin arrangement to meet appropriate riskmanagement standards.

■

To address additional concerns about systemic risk and economic concentration
of power, legislation should require stablecoin issuers to comply with activities
restrictions that limit affiliation with commercial entities. Supervisors should have
authority to implement standards to promote interoperability among stablecoins. In
addition, Congress may wish to consider other standards for custodial wallet providers,
such as limits on affiliation with commercial entities or on use of users’ transaction data.

Given the significant and growing risks posed by stablecoins, the federal financial agencies are
committed to taking action to address risks falling within each agency’s jurisdiction, and to

29

continued coordination and collaboration on issues of common interest. This also includes
promotion of investor and market protection measures, such as requiring clear and useful
disclosures, protecting against fraud, manipulation, and other risks, and continuing engagement
in international fora – such as the FATF, FSB, and CPMI-IOSCO – to promote comprehensive
and consistent oversight.
In the absence of urgently needed Congressional action to address the prudential risks posed
by payment stablecoin arrangements, the agencies recommend that the Financial Stability
Oversight Council consider steps available to it to address the risks outlined in the report, while
the agencies continue to use their existing authorities to address these prudential risks to the
extent possible. Such steps may include designation of certain activities conducted within a
stablecoin arrangement as, or as likely to become, systemically important payment, clearing,
and settlement activities.
As of October 2022, Congress is considering various legislative proposals that encompass
stablecoins.

United Kingdom
In July 2022, the UK introduced legislation into Parliament to bring stablecoins, where used as
a means of payment, within the regulatory perimeter given their potential for widespread use and
potential financial stability implications. It will ensure that stablecoins which reference their value
from fiat currency are subject to the same regulatory oversight as similar payment methods,
such as e-money. This means that issuers of, and payment service providers using, stablecoins
will need to be authorised by the FCA, and meet FCA conduct and prudential requirements. The
Bank of England will also be able to regulate and supervise systemically important stablecoin
payment systems and related service providers, subject to HM Treasury recognition. Similarly,
the Payment Systems Regulator will be able to regulate and supervise stablecoin payment
systems and participants to promote effective competition and innovation, subject to HM
Treasury designation. Secondary legislation will create an FCA authorisation and supervision
regime, and set out the mechanism for managing co-responsibility for regulation for systemic
stablecoin providers.
The UK is also currently considering responses to a consultation on its proposal to apply the
Financial Markets Infrastructure Special Administration Regime, a bespoke insolvency
framework for systemic payment and settlement systems, in amended form to systemic
stablecoin firms with the ambition of ensuring appropriate tools are in place to mitigate the risks
to financial stability associated with a systemic stablecoin firm’s failure.

30

Standard-setting bodies
BCBS
In June 2022, the BCBS published its second consultative document on the prudential treatment
of banks’ exposures to crypto-assets. 12 The basic structure of the proposal in the first
consultation is maintained, with crypto-assets divided into two broad groups to determine
minimum risk-based capital requirements for credit and market risk:
■

Group 1 crypto-assets are those crypto-assets that meet a set of classification
conditions. Group 1 crypto-assets will generally be subject to risk-based capital
requirements based on the risk weights of underlying exposures as set out in the
existing Basel capital framework, with some modifications.

■

Group 2 crypto-assets are those crypto-assets that fail to meet any of the classification
conditions, including unbacked crypto-assets and stablecoins with ineffective
stabilisation mechanisms. As a result, they pose additional and higher risks compared
with Group 1 crypto-assets and consequently will be subject to a newly prescribed
conservative capital treatment.

The classification conditions relate to the nature of the crypto-asset, issues of legal certainty, the
reliability of the design of the crypto-asset arrangement and the regulation and supervision of
entities performing significant functions. Group 1 crypto-assets include tokenised traditional
assets (Group 1a), and crypto-assets with effective stabilisation mechanisms (Group 1b).
Stablecoins can only been included in Group 1b if they are redeemable for underlying traditional
asset(s) (e.g. cash, bonds, commodities, equities) and the stabilisation mechanism is assessed
to be effective. Algorithm-based stablecoins or those stablecoins that use protocols to maintain
their value are not eligible for Group 1.
The updated proposals in the second consultation provide more detail on the proposed cryptoasset standard and include new elements such as an infrastructure risk add-on to cover the new
and evolving risks of distributed ledger technologies; limited recognition of hedging for qualifying
Group 2 crypto-assets (i.e., Group 2a); and an overall gross limit on Group 2 crypto-asset
exposures.
In addition to the capital requirements for credit and market risk, the consultation provides
guidance on the application of other aspects of the Basel Framework to crypto-assets, such as
liquidity requirements, operational risk, the leverage ratio and large exposures. The liquidity
requirements have been expanded to more fully address the risks posed by crypto-liabilities that
may arise in the context of banks issuing stablecoins or other tokenised claims. The consultation
also includes an expanded section on how the supervisory review process should be applied in
the case of banks’ crypto-asset activities and requires banks to disclose information regarding
their crypto-asset exposures and activities on a regular basis.

12

Available here.

31

Given the rapid evolution and volatile nature of the crypto-asset market, the BCBS will continue
to monitor developments closely during the consultation period. The BCBS aims to finalise its
crypto-asset standard around year-end and has indicated that they may be tightened if
shortcomings in the consultation proposals are identified or new elements of risks emerge.

CPMI-IOSCO
In July 2022, the Bank for International Settlements’ Committee on Payments and Market
Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO)
published guidance on the Application of the Principles for Financial Market Infrastructures
(PFMI) to stablecoin arrangements. This is a result of the continued contribution of CPMI-IOSCO
to the overall FSB work on stablecoins as well as a major step forward in applying “same risk,
same regulation” to systemically important stablecoin arrangements (SAs) that are used for
payments.
The guidance, which follows the consultative report of October 2021, reconfirms the preliminary
results from the analysis conducted by CPMI-IOSCO as part of the FSB’s 2020 report on
Regulation, Supervision and Oversight of ‘Global Stablecoin’ Arrangements: if a SA performs a
transfer function and is determined by authorities to be systemically important, the SA as a whole
is expected to observe all relevant principles of the PFMI.
While the guidance per se does not create additional standards for SAs beyond those set out in
the PFMI, it provides clarity and granularity on how systemically important SAs should approach
to observing certain aspects of the PFMI. Specifically, the report proposes guidance on aspects
related to: (i) governance (PFMI Principle 2), (ii) framework for the comprehensive management
of risks (Principle 3), (iii) settlement finality (Principle 8) and (iv) money settlements (Principle 9).
The report also provides considerations to assist relevant authorities in determining whether an
SA is systemically important in their jurisdictions.
Notable feature is that the guidance provides expectations for a stablecoin used by a
systemically important SA as a settlement asset, stating that it should have little or no credit or
liquidity risk. SAs could be used to settle payments, discharging obligations arising from a range
of financial transactions with the use of stablecoins as settlement assets, including not only use
cases involving retail payments (i.e., remittances) but also wholesale payments.
The CPMI and IOSCO continue to examine regulatory, supervisory and oversight issues
associated with SAs and coordinate with other SSBs.

IOSCO
Crypto-assets, including stablecoins, have been a priority for IOSCO since 2017 and related
work has been undertaken by IOSCO’s former Fintech Network and its policy committees.
Previous IOSCO work includes a report 13 published in March 2020 that identified the possible
implications of global stablecoin initiatives for securities markets regulators, including how

13

Available here.

32

stablecoins interact with their regulatory remit. Insights from the report contributed to the highlevel recommendations for the Regulation, Supervision and Oversight of Global Stablecoin
Arrangements developed by the RIS, published in October 2020. 14
Most recently, in March 2022, IOSCO published its “Decentralized Finance Report” 15 which
offers a comprehensive review of the fast-evolving DeFi market, including its products, services
and principal participants. Stablecoins are a key feature of the Decentralised Finance (DeFi)
ecosystem and have contributed to its exponential and continuing growth. They are used in
multiple ways in DeFi applications, including as a stable leg in a trade against a more volatile
crypto-asset or as “collateral” to finance activities such as liquidity mining, yield-farming, lending
and borrowing. The report highlights the numerous risks to participants, investors and markets
arising from the DeFi including, for example, the failure of a stablecoin issuer or crypto-asset
trading platform involved in a particular stablecoin arrangement. Such a failure could give rise to
significant volatility in these assets and thereby impair, among other things, the collateral and
liquidity of DeFi protocols and lead to knock-on effects in the broader crypto-asset market
ecosystem.
With the rapid advancements in the Fintech space and the explosive growth of the crypto-asset
market, IOSCO saw the need to establish a Board-level Fintech Task Force (FTF), which will
prioritise policy work. The FTF is tasked with developing, overseeing, delivering, and
implementing IOSCO’s regulatory agenda with respect to Fintech and crypto-assets. It is also
charged with coordinating IOSCO’s engagement with the FSB and other SSBs on Fintech and
crypto-related matters.
In its initial 12 to 24 months, the FTF will prioritize policy work on crypto-asset markets and
activities, while continuing to monitor trends associated with broader Fintech developments. The
FTF published its roadmap on 7 July, 16 which includes two workstreams in its program of work,
both focusing on market integrity and investor protection concerns in the crypto-asset space.
Recent turmoil in the crypto-asset market has underscored the link between investor protection,
market integrity, and the stability of the broader crypto-asset market ecosystem. The first
workstream will delve into Crypto and Digital Assets (CDA). Its work is broadly categorised into
(i) the fair, orderly trading, transparent markets, suitability and market manipulation in relation
to, and (ii) safekeeping, custody and soundness. The second workstream will look more
specifically into Decentralised Finance (DeFi) and the role of Stablecoins within DeFi. This builds
on the work that culminated in the March 2022 Decentralized Finance report, and will further
explore the links between DeFi, stablecoins, and crypto-assets trading platforms, as well as the
interactions of DeFi with broader financial markets. Both workstreams will also discuss
stablecoins in the context of their respective mandates.
The FTF aims to publish a report with policy recommendations by end-2023.

14
15
16

Available here.
Available here.
Available here.

33

FATF
In June 2019, FATF extended its anti-money laundering and counter-terrorist financing
(AML/CFT) measures to virtual assets (VAs) and virtual asset service providers (VASPs) to
prevent criminal and terrorist misuse of the sector 17. In July 2020, the FATF published key
findings on the application of FATF Standards to stablecoins in its Report to G20 on So-called
Stablecoins 18. This report clarifies that the revised FATF Standards apply to stablecoins, which
will either be considered a virtual asset or a financial asset depending on its exact nature and
the regulatory regime in a country. As such, a range of the entities involved in any stablecoin
arrangement will have AML/CFT obligations. Certain stablecoins, i.e., ‘’global stablecoins’’, could
have greater potential for mass adoption than other virtual assets, which could increase the
money laundering and terrorism financing (ML/TF) risks if it substantively increased the number
and value of payments not subject to AML/CFT controls. Accordingly, it is important that the
ML/TF risks of stablecoins are analysed in an ongoing and forward-looking manner and are
mitigated before launch. FATF will keep monitoring the development of market including
stablecoins to ensure the current AML/CFT measures remain fit-for-purpose.
Since the adoption of the revised FATF Standards in 2019, FATF has conducted two reviews on
implementation of the revised FATF Standards 19,20 and published Updated Guidance for a RiskBased Approach to VAs and VASPs, which provide further clarifications on how the FATF
Standards apply to stablecoins 21. Building on the two reviews, in June 2022, FATF produced a
targeted update on implementation of its Standards on VAs and VASPs 22, which outlines country
implementation of FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15) 23 with
a focus on FATF’s Travel Rule. The Travel Rule (Recommendation 16) is a key AML/CFT
compliance measure, which mandates that VASPs obtain, hold and exchange information about
the originators and beneficiaries of VA transfers.
The report finds a continued need for many countries to strengthen their understanding of ML/TF
risks of the VA and VASP sector and to rapidly implement FATF’s R.15/INR.15, including the
Travel Rule, to mitigate such risks. In particular, the report finds that jurisdictions have made
only limited progress over the last year in implementing the Travel Rule despite available
technological solutions. Of the 98 jurisdictions that responded to FATF’s March 2022 survey,
only 29 jurisdictions have passed relevant Travel Rule laws. A smaller subset, just 11 of these
jurisdictions, have started enforcement related to the Travel Rule. This demonstrates an urgent
need for jurisdictions to accelerate implementation and enforcement of R.15/INR.15 to mitigate
criminal and terrorist misuse of VAs.

17
18
19
20
21

FATF (2019), The FATF Standards: FATF Recommendations (Amended in 2019).
FATF (2020a), FATF Report to G20 on So-called Stablecoins.
FATF (2020b), 12-Month Review of Revised FATF Standards on Virtual Assets and VASPs.
FATF (2021a), Second 12-Month Review of the Revised FATF Standards on Virtual Assets and VASPs.

FATF (2021b), FATF Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, (Initially
published in 2019 and updated in 2021).
22
FATF (2022), Targeted Update on Implementation of FATF’s Standards on VAs and VASPs.
23

FATF’s R.15/INR.15 sets the global AML/CFT Standards for VAs and VASPs by clarifying how the FATF requirements apply in
relation to VAs and VASPs.

34

On stablecoins, the targeted update finds that the usage and liquidity of stablecoins are
increasing in parallel with the growth of DeFi markets 24, as stablecoins are often used to facilitate
trading or serve as collateral in DeFi protocols. FATF will continue to monitor market trends
related to stablecoins and associated ML/TF risks and will work to facilitate discussion between
jurisdictions and other SSBs.
More broadly, given the remaining challenges in implementation, FATF will continue to promote
implementation of FATF’s R.15/INR.15, including the Travel Rule. FATF will also monitor
additional market trends for material changes, such as in relation to DeFi and NFTs, by engaging
with member countries, multilateral fora including G7 and G20, and the private sector. FATF will
conduct an updated review on implementation progress by June 2023 with the intention of
publishing the main findings. To mitigate ML/TF risks associated with VAs, FATF calls on all
FSB member countries and G20 member countries to accelerate compliance with FATF’s
R.15/INR.15, as well as the Travel Rule, as a matter of priority.

24

IMF (2022) Global Financial Stability Report April.

35

Glossary 25
Algorithm-based stablecoin
A stablecoin that purports to maintain a stable value via protocols that provide for the increase
or decrease of the supply of the stablecoins in response to changes in demand.
Asset-linked stablecoin
A stablecoin that purports to maintain a stable value by referencing physical or financial assets
or other crypto-assets.
Blockchain
A form of distributed ledger in which details of transactions are held in the ledger in the form of
blocks of information. A block of new information is attached into the chain of pre-existing blocks
via a computerised process by which transactions are validated.
Crypto-asset
A digital asset (issued by the private sector) that depends primarily on cryptography and
distributed ledger or similar technology.-.
Crypto-asset ecosystem
The entire ecosystem that encompasses all crypto-asset activities, market and participants.
Crypto-asset issuer
An entity, person, or other structure that creates new crypto-assets.
Crypto-asset market
Any place or system that provides buyers and sellers the means to trade crypto-assets and the
associated instruments, including lending, structured investment products, and derivatives.
Crypto-asset markets facilitate the interaction between those who wish to offer and sell and those
who wish to invest.
Crypto-asset services
Services relating to crypto-assets that may include, but are not limited to, distribution, placement,
facilitating exchange between crypto-assets or against fiat currencies, custody, provisioning of
non-custodial wallets, facilitating crypto-asset trading, borrowing or lending, and acting as a
broker-dealer or investment adviser.
Crypto-asset service providers

25

The glossary is for the purposes of this document and does not replace other existing taxonomies

36

Individuals and entities that conduct the provision of crypto-asset services, including cryptoasset intermediaries such as crypto-asset trading/lending platforms and wallet providers, among
others.
Crypto-asset activities
Activities serviced by a crypto-asset issuer or crypto-asset service provider.
Crypto-asset trading platform:
Any platform where crypto-assets can be bought and sold, regardless of the platform’s legal
status.
Decentralised Finance (DeFi)
A set of alternative financial markets, products and systems that operate using crypto-assets
and ‘smart contracts’ (software) built using distributed ledger or similar technology.
DeFi protocols
A specialized autonomous system of rules that creates a program designed to perform financial
functions.
Digital asset
A digital representation of value or contractual rights which can be used for payment or
investment purposes.
Fiat-referenced stablecoin
A stablecoin that purports to maintain a stable value with reference to one or several fiat
currencies and has the potential to be used as a means of payment and/or store of value.
Global stablecoin (GSC)
A stablecoin with a potential reach and use across multiple jurisdictions and which could become
systemically important in and across one or many jurisdictions, including as a means of making
payments and/or store of value.
Multi-currency stablecoin
A stablecoin denominated in or pegged to a basket of fiat currencies.
Project developers
Individuals/entities that develop protocols or other essential building blocks of the technological
infrastructure to issue a crypto-asset, launch a distributed ledger or distributed-ledger-based
application, or function as a crypto-asset service provider.
Smart contract

37

Code deployed in a distributed ledger technology environment that is self-executing and can be
used to automate the performance of agreement between entities. The execution of a smart
contract is triggered when that smart contract is “called” by a transaction on the blockchain. If
triggered, the smart contract will be executed through the blockchain’s network of computers
and will produce a change in the blockchain’s “state” (for example, ownership of a crypto-asset
will transfer between market participants). 26
Stablecoin
A crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or
basket of assets.
Stablecoin arrangement
An arrangement that combines a range of functions (and related activities) that aims to maintain
a stable value relative to a specified asset, or a pool or basket of assets. When discussing a
stablecoin arrangement, reference is made to:
■

Activity

Typical activities in a stablecoin arrangement are: (i) establishing rules governing the stablecoin
arrangement; (ii) issuing, creating and destroying stablecoins; (iii) managing reserve assets; (iv)
providing custody/trust services for reserve assets; (v) operating the infrastructure; (vi) validating
transactions; (vii) storing the private keys providing access to stablecoins (e.g. using a wallet);
and (viii) exchanging, trading, reselling, and market making of stablecoins.
■

Function

Functions in a stablecoin arrangement are: (i) governing the arrangement; (ii) issuance,
redemption and stabilisation of the value of coins; (iii) transfer of coins; and (iv) interaction with
users for storing and exchanging coins.
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Governance body

A body responsible for establishing and monitoring the rules governing the stablecoin
arrangement which would cover, among other issues, the types of entities that could be involved
in the arrangement, the protocol for validating transactions, and the manner in which the
stablecoin is “stabilised”.
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Provider of function/activity

An entity that provides a particular function or activity associated with that function in a stablecoin
arrangement.
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User

There are unresolved questions regarding the legal status and enforceability of smart contracts.

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A person or entity that uses a stablecoin, e.g. for speculative trading, lending, borrowing, or as
a means of payment or store of value.
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Validator node

An entity that participates in the consensus mechanism in a distributed ledger or similar network.
In the context of distributed ledger technology, a validator node will commit transaction blocks
to the ledger once they are validated.
Wallet
An application or device for storing the cryptographic keys providing access to crypto-assets. A
hot wallet is connected to the internet and usually takes the form of software for the user, while
a cold wallet is a hardware that is not connected to the internet and stores the cryptographic
keys.
Custodial wallet
A crypto-asset service where a user’s crypto-assets are kept under custody by a service provider
on behalf of the user. The user interacts with the service provider, rather than the blockchain, to
manage its crypto-assets. A custodial wallet is also known as a “hosted wallet”.
Non-custodial wallet
Software or hardware that stores cryptographic keys for a user, making the user’s crypto-assets
accessible only to the user, and allowing the user to interact directly with the blockchain and the
blockchain-based finance applications. A non-custodial wallet is also known as an “unhosted
wallet”.