The Bank for International Settlements (BIS) recently conducted a survey across 11 jurisdictions and found that the use of stablecoins is being hindered by regulatory fragmentation on an international level. According to the report, the regulation of stablecoins is an urgent matter, but the diversity in regulatory approaches poses risks to their integration into the global financial system.
While most regulatory approaches share similarities in terms of authorizing issuers, imposing reserve requirements, managing risks, and implementing Anti-Money Laundering (AML) measures, differences arise when it comes to the structuring of stablecoin issuances. This can result in stablecoins being regulated under frameworks for banking, securities, commodities, or payment systems.
Furthermore, there are variations in the specifics of regulations, redemption policies, and the definition of stablecoins. For instance, some jurisdictions treat algorithmic stablecoins, which are not pegged to external assets, the same as fiat-pegged stablecoins. However, the United Kingdom, Japan, and Singapore have separate regulations for algorithmic stablecoins, while jurisdictions in the United Arab Emirates have banned them altogether. Reserves may also need to be segregated in different ways, placed in the hands of custodians with varying requirements, or, as in the case of the U.K., placed in a statutory trust. Audit and liquidity requirements also differ significantly.
On a positive note, technological and cybersecurity requirements tend to be more standardized. However, the interaction between stablecoins and central bank digital currencies, tokenized deposits, and other digital assets still requires further exploration.
This report aligns with the recommendations on stablecoin regulation that BIS issued in February. BIS emphasized the need for governments to collaborate and address concerns related to disclosure, risk management, redemption, and other issues.
In addition to BIS, several other international organizations, including the International Monetary Fund, Financial Stability Board, Financial Action Task Force, Basel Committee on Banking Supervision, and International Organization of Securities Commissions, have also developed policies on stablecoins that they aim to advance.