At the request of G20, the Financial Stability Board (‘FSB’) is preparing a comprehensive regulatory framework for crypto-currencies. The framework is to be finalised this year. In his letter to the G20 ministers of finance, the Chair of the FSB Klaas Knot expressed concerns about stablecoins.

In the FSB’s view, most of the existing stablecoins will not be compliant with the new risk management rules being designed. Nor will the stablecoins be compliant with international or the supplementary, more detailed guidelines of the BIS Committee on Payments and Market Infrastructures-International Organization of Securities Commissions. 

According to the Chair of the FSB, stablecoins are seen as an actual mechanism of transmission of financial shocks that might render the threats to financial stability even more severe. Last year’s failure of the FTX has shown weaknesses of crypto-currencies: high volatility and lack of a stable structure of crypto-currency systems. Additionally, the link with the traditional finance system may cause the risk to spill over from the crypto-currency market to the entire financial system.

The open letter is available at: https://www.fsb.org/wp-content/uploads/P200223-1.pdf