ECSDA answer to the FSB consultation on stablecoins

ECSDA answer to the FSB consultation on stablecoins

On 15 July, ECSDA responds to the Financial Stability Board consultation: Addressing the regulatory, surpervisory and oversight challenges raised by “global stabelcoin” arrangements

Introductory remarks

ECSDA welcomes FSB´s on-going efforts to further enhance market stability and market integrity by, among others, addressing the regulatory, supervisory and oversight related challenges raised by global stablecoin arrangements. We also acknowledge FSB´s valuable work within the DLT discussion. As operators of Central Securities Depositories (CSDs), we have a long experience in supporting markets and implementing safeguard mechanisms for these markets.
We favour the approach undertaken by the FSB, especially referring to already existing international standards to deal with global stablecoins (GSC). From our point of view, it is time to raise the crypto-asset ecosystem to the same level of regulation as the rest of the financial system. “Same business, same risks, same rules” should apply as a general principle.

CSDs are primarily looking at GSC as a potential means of settling one of the ‘legs’ of the transactions in securities or digital- assets. We would, therefore, ask regulators not to look at the arrangements in isolation, but as part of the ecosystem in which this new segment will be integrated. Due to the interdependence of different actors and segments of financial markets, regulators should also pay attention to financial stability risks related to GSC. Lessons learned from the previous financial turmoil should be kept in mind: the technology changes should not lead to the creation of a less regulated financial segment that may lead to global systemic consequences. The regulation of the actors using the technology should always be technology-neutral, and the technology should be no justification for different treatment.

Given that the application of the technology in financial markets is still in an early stage, we would ideally favour a close global alignment of regulators when addressing the vulnerabilities of the various activities of GSC arrangements. Therefore, we welcome the opportunity to comment on the FSB´s Consultative document.

Key messages

  1. Financial stability has to be ensured at all times
    We agree with the consultation risks to financial stability which were mentioned. However, we would add:

    A. The need for attention to the value and stability of a fiat currency (or even multiple fiat currencies) and how the respective central bank(s) in charge might be affected (e.g. by inflation), and the need for attention to the value and stability of the securities backing GSCs and the risks linked to those.

    B. GSCs need to evidence the existence and amount/value of reserves they maintain at all times, both reliably and continuously. For this purpose, specific trusted third parties responsible for the ‘notary’ functions should be used.
    There should be mechanisms preventing custodian insolvency impacts, including ensuring the use of dedicated trusted third parties. Maximum protection, which may be desirable in the case of GSC, would be ensured by having reserves in the form of cash held in central banks and reserves in the form of securities held in CSDs.

  2. We would encourage further global and regional cooperation and clarification of GSC arrangements

    A. Clear classification of crypto-currencies and (global) stablecoins is necessary.
    Digital payment assets (payment tokens) or ‘digital money’ in general, have different subcategories, depending on the features we specify below. The risks (including related to the probability of the issuer insolvency) related to the backed assets (‘reserves’ or ‘collateral’) will be a crucial factor for investors, and hence should be taken into account by regulators.

    B. It would also be useful to clarify the distinction between stablecoins and securities-tokens.

    C. Due to their insolvency remoteness and their proven resilience as systemic FMIs, the safety and resilience of a global stablecoin arrangement can be enhanced by having existing CSDs taking roles in the arrangements. For that reason, there may be no need to duplicate the PFMI requirements applicable to these institutions in a framework dedicated to stablecoins.

    D. We see the need for the detailing of the future FSB recommendations at the national or regional level in the near future.

Please read the full response

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