Thursday, 20 August, 2020
The Digital Regulator
The regulatory endorsement of global stablecoins (GSCs)
International regulators reacted strongly to the announcement of the GSC project Libra in June 2019 by BigTech Facebook. The resultant debate on the merits and threats of GSCs created a fundamental regulatory uncertainty regarding the possibilities for GSCs to be issued in the first place, effectively putting such projects on hold. In July 2020, the Financial Stability Board (FSB), acting on behalf of the G20, concluded the public consultation on how to regulate GSCs. The joint consideration of the consultation paper and the comments received on it indicate a fundamental endorsement of GSCs by international regulators. The debate moves on to the implementation stage, wherein the manner of implementation of GSCs along with the application of the specific regulatory provisions need to be defined. As a consequence, GSC projects—including Libra—can resume full steam, and improved financial inclusion as well as cheaper and faster processing of (international) payments get closer. Overall, this fundamental endorsement of GSCs provides blockchain-based finance with a further boost.
The last few weeks have witnessed some other noteworthy developments in the area of digital regulation, such as the selection of Switzerland-based SEBA Bank AG by the Banque de France to help test wholesale Central Bank Digital Currency (CBDC) and the formal authorization granted to US banks by the Office of the Comptroller of the Currency (OCC) to offer custody services for cryptocurrencies.
GSCs: From fundamental concerns to fundamental endorsement
The announcement of project Libra by BigTech Facebook one year ago was followed by an intense and vital regulatory debate about the virtues and threats of GSCs. The debate has involved the most influential regulatory policy bodies globally, including the G7 and G20, the FSB, the Bank for International Settlements (BIS), the International Monetary Fund (IMF), the Financial Action Task Force (FATF), the International Organization of Securities Commissions (IOSCO), the European Central Bank (ECB), and many national authorities (for example, those of France, Germany, England, and Switzerland). Despite a consensus around the legitimate nature of the problems GSCs set out to address (financial inclusion and cost and speed of international payments), the authorities emphasized the fundamental issues preventing the authorization of such projects in the first place. These items ranged from anti-money laundering (AML) and governance concerns to financial stability aspects and threats to national currencies of a geopolitical nature, thus generating a fundamental uncertainty around GSCs that halted related projects. The nature of the FSB consultative paper on the regulatory, supervisory, and oversight challenges arising from GSCs and the associated regulatory recommendations, as well as the tenor of the positions sent in by various stakeholders by the deadline (July 15, 2020), have clearly signalled the removal of the fundamental uncertainty and paved the way toward the implementation of GSC projects.
Other noteworthy developments
The US Office Office link1of the Comptroller of the Currency (OCC) authorizes banks to offer cryptocurrency custody services. This decision is expected to benefit the development and adoption of cryptofinance in the US.
Summer 2020 is likely to be remembered in the digital regulatory space by what the conclusion of the consultation period on the FSB paper “Addressing the regulatory, supervisory and oversight challenges raised by ‘global stablecoin’ arrangements” really signified—the end of the fundamental uncertainty surrounding the possibilities for GSC projects. These projects can now resume full steam toward implementation mode—a phase which should be ideally carried out in active cooperation with the relevant regulatory authorities. On a more holistic note, the resolution of the fundamental uncertainty that has surrounded GSC projects is bound to further boost crypto finance adoption globally over time.
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