Regulators are calling for tighter oversight of the stablecoins after a market meltdown in the past few weeks highlighted vulnerabilities that could contaminate the price of other assets.
Global financial regulators are calling for tighter oversight of the stablecoins after a market meltdown in the past few weeks highlighted vulnerabilities that could contaminate the price of other assets.
Jon Cunliffe, a Bank of England deputy governor and chair of the Bank for International Settlements’ Committee on Payments and Market Infrastructures, set out guidance on the use of stablecoins that authorities hope will be adopted into national legislation around the world.
Cunliffe set out the proposals in an op-ed column for Bloomberg Opinion, writing with Ashley Alder, chair of the board of the International Organization of Securities Commissions, who will take over as chair of the UK’s Financial Conduct Authority in January.
The two said that although the crash in the value of cryptoassets such as Terra and Tether wasn’t a risk to the broader financial system, future episodes could be more problematic.
The sell off is “a lesson for the future,” Cunliffe and Alder wrote. “It underlined the speed with which confidence can be eroded and the potential volatility of stablecoins, and cryptos more generally.”
They said the “strong growth” in the value of money circulating in crypto markets makes links between those assets and the banking system a risk regulators shouldn’t ignore.
The op-ed said that the joint guidance will aim to reinforce the principles that:
“Stablecoins intended to function as money and used in systemically important arrangements should ensure users will be able to convert their claims at par into other liquid forms of money”
“Stablecoin arrangements should have clear and direct lines of responsibility and accountability, for instance, by making clear what the responsible legal entity is (and who the people responsible for operating that entity are).”
“It is important that the lessons are learnt and these standards are reflected in national legislation quickly, before stablecoins become systemic,” the op-ed said.
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