The Bank for International Settlements (BIS), a global financial institution that’s owned by reserve banks and aims to “foster international monetary and financial cooperation and serves as a bank for central banks,” notes that advancements in technology, along with rising demand for digital payment methods have been reshaping the way payments are conducted.
Non-bank institutions are now providing a fairly extensive range of retail payment options. This raises the question of where the regulatory guidelines need to be applied and whether a new framework should be developed to regulate the new payments systems.
Financial authorities across the globe are now facing the challenge and task of determining whether the risk profile of certain payment systems are appropriately addressed in their respective regulatory frameworks. A solid understanding of the different regulatory approaches in jurisdictions throughout the world can help with accurately assessing the effectiveness of these guidelines (as they apply to modern payments).
In its latest paper, the BIS looks into how non-bank payment service providers (NBPSPs) are being regulated and offers a cross-country overview of the regulatory landscape for virtual payment and e-money services provided by NBPSPs. The paper has been prepared after obtaining feedback from a CPMI survey of 75 jurisdictions (carried out earlier this year).
As noted in the comprehensive paper from the BIS, emerging technologies are “creating the potential for new means of payments to develop.” Although crypto-assets such as Bitcoin have “failed to qualify as a payment instrument due to their high volatility, the role of stablecoins as a new payment method may potentially increase over time,” the paper noted.
The paper also mentioned that the adoption of stablecoins, however, could be “affected by the rollout of CBDCs, which might be perceived as attractive alternative.” Because there is as yet “no dedicated regulatory regime for stablecoins, the regulatory treatment of a stablecoin will depend on its specific features and setup,” the BIS noted.
The paper continued:
“Regulatory approaches for stablecoins as one variant of crypto-assets are under consideration in a few jurisdictions but nothing has been finalized yet. In the EU, the European Commission proposed the establishment of a European framework for markets in crypto-assets in September 2020, which would introduce a range of requirements (eg capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer) for crypto-asset issuers and providers, with more stringent requirements applicable to issuers of GSCs.”
The report further noted that in the US, the Treasury released a consultation on its suggested approach to regulating crypto-assets and stablecoins in January of this year. It proposes to bring stablecoins that are currently used as a payment method into the “regulatory perimeter.” Finally, in the US, a proposal to regulate stablecoins, called the STABLE Act, was released in of last year, the BIS added. It would “inter alia require any stablecoin issuer to obtain a federal banking charter,” the BIS explained.
The paper pointed out that the role of Big Techs in payments is likely “to receive further attention.” Big techs have already “captured a substantial market share in digital payments in some jurisdictions,” the paper revealed while noting that even where they have not, this “can change rapidly due to the unique features of their business models and they could quickly become systemically important – or ‘too big to fail.'”