IOSCO Board: Stablecoins Like Libra Can Include Features that are Typical of Regulated Securities

The International Organization of Securities Commissions (IOSCO) has issued a statement on stablecoins.

The concept of stablecoins has endured increasing regulatory scrutiny following the announcement by Facebook that it intends to issue Libra – a stablecoin expected to be backed by fiat currency and other low volatility assets.

The Board of IOSCO met last week in Madrid (October 30, 2019) to consider the risks and benefits of Stablecoins with a potentially global reach (IE Libra) and how securities regulation may apply.

The IOSCO Board acknowledged that stablecoins may offer benefits to market participants, consumers and investors.  However, IOSCO said it is also aware of potential risks regarding “consumer protection, market integrity, transparency, conflicts of interest and financial crime, as well as potential systemic risks.”

The IOSCO Fintech Network reportedly produced an assessment as to how Principles and Standards could apply to global stablecoins.

This assessment concluded that a “case-by-case approach is needed to establish which IOSCO Principles and Standards, and national regulatory regimes, would apply.”

Ashley Alder, Chair of the IOSCO Board, commented on the stablecoin review:

“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. Global Stablecoin initiatives are rightly subject to significant international and public scrutiny.

Adler said they agree with the recent G20 press release that global stablecoins may create systemic risk.

The Fintech Network is currently chaired by the UK Financial Conduct Authority (FCA) widely recognized as one of the most innovation-friendly regulators in the world.

Alder said that 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 realized. 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. 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,” added Adler.

He explained that in addition to supporting the work of the FSB, the IOSCO Fintech Network will continue its assessment and consideration of global stablecoin initiatives.

Multiple regulators and policymakers have voiced concern regarding Libra which, if launched in its currently expected form, will be, in effect, a global non-sovereign currency. Recently, the US Congress has held a series of hearings on Libra that challenged Facebook on its intent as well as its past indiscretions regarding consumer data abuse.

Many industry observers have noted that if Libra generates a return for Libra Association members it is, in fact, a security.

The Network will facilitate information sharing between securities market regulators on such proposals.

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