Stablecoins as New Financial Market Infrastructures?

With the emergence of stablecoin arrangements and given the impact these could have on the stability of the financial system, leading economies (G7, G20) and the Financial Stability Board have called on standard-setting bodies to amend the existing standards accordingly. The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO), which together are responsible for appropriate standards for the payment function of stablecoins, published a joint report at the start of October 2022.

In it, CPMI and IOSCO propose guidelines for applying the Principles for Financial Market Infrastructures (FMIs) to stablecoin arrangements that are considered systemically important FMIs. Firstly, the report clarifies that stablecoin arrangements must comply with the principles for systemically important FMIs, just like conventional FMIs such as payment systems (same risk, same regulation). Secondly, it discusses notable and new stablecoin features in light of these principles. The following features stand out here:

1. The potential use of a new payment means as an alternative to central bank or commercial bank money
2. Potential interactions between multiple functions of a stablecoin arrangement (in addition to the payment function, these primarily include the issuing and value stabilization functions)
3. The potential degree of decentralization of operations and the organizational structure
4. The potential extensive use of new technologies such as distributed ledger technology (DLT)

These features are discussed with regard to the principles on governance, risk management, finality, and payment means. Regarding the payment means, the specific application of the principles for FMIs will depend on the regulatory conditions for other core functions of the stablecoin arrangements. These regulatory conditions are still to be developed at the international level by various standard-setting bodies. At present, CPMI and IOSCO are also still working on stablecoin arrangements where the stabilization function is based on collateral denominated in several national currencies. Thus, the overall shape of the stablecoin arrangements regulation is still a work in progress.

Thomas Nellen
Financial Stability – Oversight, Swiss National Bank