Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, has reportedly vowed to address the evolving threats from private finance and the growing use of stablecoins.
Global Watchdog Plans Surveillance Overhaul
On Monday, Bank of England (BoE) Governor and FSB Chairman Andrew Bailey promised to increase the global watchdog’s policy response to the emerging risks related to the private finance sector and stablecoins.
According to Bloomberg, Bailey pledged to overhaul the FSB’s surveillance in a letter delivered ahead of this week’s Group of 20 (G20) meetings, seeking to make it “more flexible and quicker to recognise, and respond to, emerging vulnerabilities.”
“Whether it is the rise of private finance, the implications of geopolitical tensions, or the increasing role of stablecoins for payment and settlement purposes, our ability to detect and address emerging risks is critical,” he wrote in the letter.
In June, the Financial Action Task Force (FATF) raised concerns about the “increasing risks” associated with the adoption of stablecoins, noting that the growing use of these digital assets by illicit parties poses a challenge to global financial security.
The FATF emphasized that mass adoption of stablecoins could increase these risks given the “inconsistent application” of its standards across various jurisdictions. Similarly, Bailey considers there is potential for “regulatory arbitrage” due to gaps in addressing financial stability risks and the low number of finalized regulatory frameworks for global stablecoin arrangements.
He affirmed that the FSB will have “open and frank discussions among members” about the next steps for the international watchdog, and will “increase outreach to the private sector to benefit from their expertise and perspectives on risks and vulnerabilities.”
The FSB chair also warned that the global deregulatory trend has “raised concerns that reform efforts may be weakening.” Notably, Bailey has previously shared a skeptical perspective on the sector, cautioning that stablecoins threaten to destabilize the public’s trust in money.
However, he has recently shared a seemingly softer approach, affirming that it would be “wrong to be against stablecoins as a matter of principle,” which could suggest a shift from his highly criticized approach.
Stablecoin Regulation Faces Challenges
Amid stablecoin’s growing momentum, driven by the US regulatory efforts, Europe’s top financial stability watchdog is reportedly pushing for stricter regulations for the sector, which could impact how issuers like Circle and Paxos operate across borders.
As reported by Bitcoinist, the European Central Bank (ECB) has called for a ban on multi-issuance stablecoins in the bloc and other jurisdictions, following a recently passed recommendation by the European Systemic Risk Board (ESRB) to ban jointly issued stablecoins.
Despite being supported by a high-powered board of central bank governors and European Union (EU) officials, the ESRB guidance is not legally binding. However, it will likely pressure authorities to “implement the restrictions or explain how financial stability can be preserved in their absence.”
Meanwhile, the EU is reportedly planning to shift oversight power of key financial market areas, like crypto, from national authorities to a centralized supervisory authority, aiming to boost the bloc’s capital markets and address the continued fragmentation in markets.
The Chair of the European Securities and Markets Authority (ESMA), Verena Ross, affirmed that the European Commission is preparing new rules that would shift the supervision of stock exchanges, crypto companies, and clearing houses from local authorities to ESMA to “create more of a single market for capital in Europe.”
Nonetheless, smaller EU nations, such as Luxembourg, Ireland, and Malta, have criticized the proposal, arguing that a single financial regulator would become a “monster” and questioning the watchdog’s ability to oversee the rapidly growing crypto market.
