Will IOSCO Implement Special Regulations for Stablecoins?
The International Organization of Securities Commissions (IOSCO) has delivered guidelines on crypto-asset regulation, while appropriately dedicating a specific section to stablecoins.
IOSCO considers stablecoins to possess universal traits. While stablecoins technically don't differ from most tokens, they exhibit unique operating mechanisms such as minting, burning, and backing. This calls upon regulators to give stablecoins a more detailed look and demand stringent oversight.
Certainly, IOSCO's general suggestions for crypto-assets, like disclosure of information and combating fraud, fit seamlessly with stablecoins. But the existence of ancillary risks like lack of reserve audits, insufficient transparency, and bank runs amplify the issues. This necessitates an apt response, primarily a specific broadening of recommendations:
1. Beyond the standard token information, Crypto-Asset Service Providers (CASPs) must augment it with pertinent points: the core asset, status of reserves, mechanism for maintaining peg, redemption process, and rights of stablecoin holders. These crucial details matter as most users aren't familiar with the issuer's rules (such as minimum redemption amount, access to minting, etc.). A detailed note from the platform would promptly provide all essential information.
2. As the issuer plays a key role in maintaining the peg, CASPs should outline all risks associated with the stablecoin creator: the regulatory status of the organization, potential conflicts of interest with liquidity providers, transparency of reserves, and presence of a thorough audit including financial reporting.
3. Firm control over stablecoin reserves and validation that they possess ample funds to cover all tokens in circulation. This is the sole addition concerning asset custody; in other respects, all of IOSCO's advice on client deposit management aimed at providers aptly fit their regulation.
In applying these recommendations, regulators should consider any unique issues, risks, and conflicts that CASPs have with regard to stablecoins© Official IOSCO Report
Following such reports, it's evident that the extensive market capitalization, the popularity of stablecoins, and their vital role in numerous CASPs' functions attract more regulatory scrutiny than other types of cryptocurrencies. Consequently, users should prepare for more stringent regulations, possibly up to the point where these assets are treated as securities, with all the resulting implications. Meanwhile, regulators, just as with traditional coins, should engage in more extensive consultations with market players to maintain this rapidly evolving sector.
