Asymmetric Regulation Threatens Stability Coin Use – BIS Report

Despite their promises, the Bank for International Settlements (BIS) found in a study of 11 jurisdictions that the use of stablecoins is an obstacle to international decentralization. The publication states that the need for stablecoin regulation is “urgent”, but regulatory diversity creates risks for integration with the global financial system.

Most of the regulatory procedures are the same for issuers' licensing, reserve requirements, risk management and anti-money laundering (AML) measures, the report said. The diversity of Statcoin issuance structures may result in regulatory oversight in banking, securities, commodity or payment system frameworks.

There are also differences in terms of regulations, redemption policies and stability coin details. For example, some jurisdictions regulate algorithmic stablecoins, unpegged to foreign assets, in the same way as fiat-pegged stablecoins, but the United Kingdom, Japan, and Singapore regulate them separately, and the United Arab Emirates jurisdictions ban them entirely. The report said.

“The differences are mostly driven by different design features of Statcoin, their issuance, and concerns related to the nature of the issuing entity. […] The resulting fragmentation could pose a major challenge to an integrated financial system.

Reserves can be divided in different ways, held under different conditions and placed in the hands of custodians or, in the case of England, held in a statutory trust. Auditing and accounting requirements also differ greatly.

Related: ‘Primitive' stablecoin lacks fiat stability mechanisms: BIS report

Technology and cyber security requirements will become increasingly similar. Stablecoins interaction with central bank digital currency, token deposits and other digital assets should be thoroughly investigated.

The report follows BIS recommendations on stablecoin regulation released in February. BIS urged governments to cooperate and address disclosure, risk management, redemptions and other issues.

Several international bodies, such as the International Monetary Fund, the Financial Stability Board, the Financial Action Task Force, banking supervision, and the Organization of International Securities Commissions, have stable currency policies that they hope to promote.

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