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Stablecoins such as Facebook’s Libra could be subject to securities rules: IOSCO

Tue, 05 Nov 2019, 06:06 am UTC

The International Organization of Securities Commissions (IOSCO) believes that stablecoin, a digital currency with its value pegged to fiat currencies such as the U.S. dollar or euro, could fall under the existing securities regulations and has called for a case-by-case assessment.

On Nov. 04, IOSCO published its official statement on its study of emerging global stablecoin proposals.

The watchdog said that while stablecoins can potentially offer benefits to market participants, consumers and investors, they also pose risks in a number of areas, including consumer protection, market integrity, transparency, conflicts of interest and financial crime, as well as potential systemic risks.

On the basis of its assessment, IOSCO said that “a case-by-case approach is needed to establish which IOSCO Principles and Standards, and national regulatory regimes, would apply [to stablecoins].”

“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,” Ashley Alder, Chair of the IOSCO Board, said.

This means that various companies that are pursuing their own stablecoin projects, such as Facebook with its planned Libra and JP Morgan’s JPM Coin, would be required to ensure compliance with securities laws.

IOSCO also underscored the need for a detailed understanding of how a particular proposed stablecoin is expected to operate, including the rights and obligations it confers on participants and the continuing obligations of the sponsor.

Alder added that they agree with the G20 observation that “global stablecoins with potential systemic footprints give rise to a set of serious public policy and regulatory risks.” To that end, he called for international collaboration on the issue to identify and mitigate the risks and realize potential benefits.

“The recent G7 Report outlined a number of concerns and IOSCO will participate fully in the Financial Stability Board’s follow-up work, working closely with other standard setting bodies to ensure a coordinated response,” Alder said.

“In addition to supporting the work of the FSB, the IOSCO FinTech Network will continue its assessment and consideration of global stablecoin initiatives. The Network will also facilitate information sharing between securities market regulators on such proposals.”

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