Two years ago, the Financial Stability Board (FSB) made high-level recommendations for the regulation and supervision of global stablecoin arrangements (GSCs) that were endorsed by the G20. Today it updated those GSC recommendations and published a list of similar guidance for crypto assets, soliciting comments.

The FSB analysis found that most stablecoins do not meet the recommendations and says they need to improve their governance, risk management, redemption rights, stabilization mechanisms and disclosures.

Some updated recommendations are informed by the crypto crash caused by the collapse of the Terra stablecoin and the temporary decoupling of the largest stablecoin, Tether.

For example, the FSB is particularly concerned about wallet providers and whether there was a loss of confidence in a wallet provider and its ability to protect keys. That could have a ripple effect on the stablecoin.

Currently, the largest wallet providers are cryptocurrency exchanges, and our observation is that some of the exchanges are associated with specific stablecoins. For example, Coinbase with USDC and Binance with BUSD. But as far as we know, the issuance is separate from the exchanges. USDC is issued by Circle and BUSD by Paxos.

The FSB is concerned that wallet providers may also be involved in issuing stablecoins and providing off-chain transfers without sufficient collateral.

Another concern relates to governance. The FSB wants to see identifiable individuals or legal entities taking responsibility for the operation of the global stablecoin. That would make decentralized stablecoins complicated. If there are multiple entities involved or the stablecoin spans jurisdiction, the government should clarify the responsibilities of each.

FSB Crypto Asset Recommendations

As for crypto assets, the FSB created a list of recommendations, which are meaningfully summarized below. Just as stablecoin recommendations are relevant to so-called global stablecoins, many crypto asset recommendations are expected to be implemented proportionally to the size of a service provider or issuer.

The FSB has opened a consultation and is seeking comments before December 15.

The FSB crypto asset recommendations are:

• Authorities need powers, tools and resources to supervise crypto markets, issuers and service providers
• The authorities should apply “same activity, same risk, same regulation”.
• Authorities need to coordinate nationally and internationally.
• Crypto asset issuers and service providers need governance frameworks.
• Crypto asset service providers must have effective risk management.
• Crypto asset issuers and service providers must have frameworks for data collection.
• Issuers of crypto assets and service providers must have adequate information on risks, financial conditions and products.
• The authorities must identify and monitor the interconnection within the ecosystem of crypto assets and between the ecosystem and TradFi.
• Authorities must ensure that multifunctional service providers address the risks of each activity individually and in combination.