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Global approach to stablecoin

The International Organisation of Securities Commissions (IOSCO) has been consulting on the regulation of stablecoin, releasing several proposals for the emerging global cryptocurrency earlier this week.

The proposals follow a meeting in Madrid at the end of last month that considered the risk and benefits of stablecoin and looked at how securities’ commissions, such as ASIC, should apply these proposals.

“Our analysis has shown that so-called ‘stablecoins’ can include features that are typical of regulated securities. This means IOSCO Principles and Standards may apply to stablecoins depending on how they are structured, including those related to disclosure, registration, reporting and liability for sponsors and distributors,“ IOSCO Chair Ashley Adler said, in a formal statement released this week.

Adler continued that, “Global stablecoin initiatives are rightly subject to significant international and public scrutiny. We agree with the recent G20 press release that global stablecoins with potential systemic footprints give rise to a set of serious public policy and regulatory risks. We therefore encourage international collaboration, so the risks relating to stablecoins can be identified and mitigated, and the potential benefits realised. The recent G7 Report outlined a number of concerns and IOSCO will participate fully in the Financial Stability Board’s follow-up work, working closely with other standard setting bodies to ensure a coordinated response.”

In June, the Reserve Bank of Australia (RBA) released a paper, co-written by Cameron Dark, David Emery, June Ma and Clare Noon, that looked at the Australian market in the 10 years since the rise of the bitcoin.

The paper highlighted the volatility in the value of bitcoin, noting that, as a result, a new kind of ‘asset-backed’ currency called stablecoin was born.

According to the RBA’s paper:

Stablecoins are a type of cryptocurrency designed to minimise price volatility against some widely-used units of account (often the US dollar) or a common store of value (such as gold). Two broad approaches to achieve this currently exist: asset-backed stablecoins, and algorithmic stablecoins, with some offerings being a hybrid of the two.

However, the paper highlighted that, in the Australian context, the use of stablecoin as a payment is quite limited:

AUDRamp, the first Australian dollar-linked stablecoin to launch, went live in September 2018. However, only 137 tokens were issued, and the price has fallen to zero. More recently, TrueAUD was launched in April 2019 by TrustToken, the issuers of TrueUSD, though no tokens appear to have been issued. TrueAUD is expected to operate similarly to TrueUSD.

The paper does not address any regulatory approaches to stablecoin.

“It is important that those seeking to launch stablecoins, particularly proposals with potential global scale, engage openly and constructively with all relevant regulatory bodies where they may be seeking to operate,” Adler explained. “In addition to supporting the work of the FSB, the IOSCO FinTech Network will continue its assessment and consideration of global stablecoin initiatives. The Network will also facilitate information-sharing between securities’ market regulators on such proposals.”

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