Consultation report seeks confirmation that the principles for PFMI apply to stablecoin

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) has published, for public consultation, preliminary guidance that confirms and clarifies that stablecoin arrangements should observe international standards for payment, clearing and settlement systems.

Consultation report seeks confirmation that the principles for PFMI apply to stablecoin

The report notes that the payments landscape has undergone rapid transformation in recent years and continues to evolve at pace.

This is happening at the same time as financial innovation offers the prospect of new payment services and greater competition in payments but also potential risks to the financial system.

The consultation document is part of an ongoing commitment by the international regulatory community to ensure the principle of ‘same risk, same regulation’, to identify potential risks and to help develop appropriate oversight to safeguard financial stability.

“The payments landscape has undergone rapid transformation in recent years and continues to evolve at pace. This is happening at the same time as financial innovation offers the prospect of new payment services and greater competition in payments but also potential risks to the financial system,” says Sir Jon Cunliffe, Chair of the CPMI and Deputy Governor for Financial Stability at the Bank of England.

“This consultation document is part of an ongoing commitment by the international regulatory community to ensure the principle of ‘same risk, same regulation’, to identify potential risks and to help develop appropriate oversight to safeguard financial stability.”

In 2019, the Group of Seven and the Financial Stability Board (FSB) conducted work on the impact of global stablecoin arrangements and made recommendations for their regulation, supervision and oversight.

Preliminary analysis conducted by CPMI-IOSCO as part of an October 2020 FSB report found that “the Principles for Financial Market Infrastructures (PFMI) apply to stablecoin arrangements that perform systemically important payment system functions or other financial market infrastructure (FMI) functions”.

Today’s consultation paper – Application of the Principles for Financial Market Infrastructures to stablecoin arrangements – upholds and confirms that determination.

Given the novelty and complexity of stablecoin arrangements, it provides clarification and interpretation through the provision of guidance on applying existing standards to SAs, including to some of the novel features of SAs which distinguish them from other payment systems.

“This report marks significant progress in understanding the implications of stablecoin arrangements for the financial system and providing clear and practical guidance on the standards they need to meet to maintain its integrity,” comments Ashley Alder, Chair of the IOSCO Board and Chief Executive Officer of the Hong Kong Securities and Futures Commission. .

Each jurisdiction retains the prerogative to determine within its own context whether to allow stablecoin activity. If it does so, and if an SA is systemic or is likely to become systemic, then the PFMI (supplemented by the report’s guidance) would also apply.

The CPMI and IOSCO invite comments on this consultative document generally and the questions set out in the document specifically.

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