Global securities watchdog IOSCO said on Monday that proposed ‘stablecoin’ initiatives such as Facebook's Libra could come under existing securities rules.
At its meeting on 30th October in Madrid, the Board of the International Organization of Securities Commissions (IOSCO) met, amongst other things, to consider the risks and benefits arising from ‘stablecoin’ initiatives with a potential global reach (‘global stablecoins’), and how securities market regulation may apply to such initiatives.
The watchdog, made up of securities regulators from across the world, including the United States, Europe and Japan, said an assessment of stablecoins found they can potentially offer benefits as well as pose risks.
IOSCO examined a number of these initiatives. The IOSCO Board acknowledged that "stablecoins can potentially offer benefits to market participants, consumers and investors." However, it is also aware of "potential risks in a number of areas, including consumer protection, market integrity, transparency, conflicts of interest and financial crime, as well as potential systemic risks."
A stablecoin is a digital currency tied to a “stable” asset or basket of assets that can range from real currencies to commodities. Libra would be pegged to bank deposits and government securities across several currencies such as the dollar and euro.
The IOSCO FinTech Network produced an assessment for the Board of how IOSCO Principles and Standards could apply to global stablecoin initiatives.
The assessment concluded that "a case-by-case approach is needed to establish which IOSCO Principles and Standards, and national regulatory regimes, would apply." A detailed understanding of how the particular proposed stablecoin is expected to operate is therefore needed, including the rights and obligations it confers on participants and the continuing obligations of the sponsor."
“Our analysis has shown that so-called ‘stablecoins’ can include features that are typical of regulated securities. This means IOSCO Principles and Standards may apply to stablecoins depending on how they are structured, including those related to disclosure, registration, reporting and liability for sponsors and distributors," said Ashley Alder, Chair of the IOSCO Board.
"We encourage international collaboration, so the risks relating to stablecoins can be identified and mitigated, and the potential benefits realized," Alder added.
Facebook’s plans to launch Libra have raised concerns ranging from consumer protection to money laundering and even the notion that the traditional monetary system could be disrupted.
Facebook CEO Mark Zuckerberg told U.S. lawmakers last month that Libra was a “risky project”, but that it could lower the cost of electronic payments and open up the global financial system to more people.