Report and recommendations on regulatory, supervisory and oversight of challenges raised by “global stablecoin” arrangements: overview of public consultation

13 October 2020 | PDF full text (192 KB)

Summary of document history

Summary of document history

On 14 April 2020, the FSB published a consultative document on Addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements. The FSB received 53 responses including those from regulated financial institutions, trade associations representing financial technology firms, financial technology firms, trade associations representing regulated financial institutions, authorities, consulting firms and non-governmental organisations

This note summarises the main points from the responses, including to the specific questions set out in the consultation and provides an overview of the response to those comments, including changes made to the recommendations.

FSB publishes high-level recommendations for regulation, supervision and oversight of “global stablecoin” arrangements

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Ref no: 38/2020

The Financial Stability Board (FSB) today published the final version of its high-level recommendations for the regulation, supervision and oversight of “global stablecoin” (GSC) arrangements following an earlier public consultation. The report states that GSC arrangements are expected to adhere to all applicable regulatory standards and to address risks to financial stability before commencing operation, and to adapt to new regulatory requirements as necessary.

So-called “stablecoins” are a specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale. Stablecoins are an attempt to address the high volatility of “traditional” crypto-assets by tying the stablecoin’s value to one or more other assets, such as sovereign currencies. They have the potential to bring efficiencies to payments, and to promote financial inclusion. However, a widely adopted stablecoin with a potential reach and use across multiple jurisdictions (a so-called “global stablecoin” or GSC) could become systemically important in and across one or many jurisdictions, including as a means of making payments.

The emergence of GSCs may challenge the comprehensiveness and effectiveness of existing regulatory and supervisory oversight. The FSB has agreed on 10 high-level recommendations that promote coordinated and effective regulation, supervision and oversight of GSC arrangements to address the financial stability risks posed by GSCs, both at the domestic and international level. They support responsible innovation and provide sufficient flexibility for jurisdictions to implement domestic approaches.

The recommendations call for regulation, supervision and oversight that is proportionate to the risks. Authorities agree on the need to apply supervisory and oversight capabilities and practices under the “same business, same risk, same rules” principle.

The performance of some functions of a GSC arrangement may have important impacts across borders. The recommendations also stress the value of flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements among authorities.

The FSB has agreed to the following further actions as a key building block of the roadmap to enhance cross-border payments commissioned by the G20:

  • Completion of international standard-setting work by December 2021.
  • Establishment or, as necessary, adjustment of cooperation arrangements among authorities by December 2021 (and as needed based on market evolution).
  • At a national level, establishment or, as necessary, adjustment of regulatory, supervisory and oversight frameworks consistent with the FSB recommendations and international standards and guidance by July 2022 (and as needed based on market evolution).
  • Review of implementation and assessment of the need to refine or adapt international standards by July 2023.

Notes to editors

The report is intended to primarily address risks to financial stability and therefore does not cover important issues such as money laundering or terrorist financing, data privacy, cyber security consumer and investor protection and competition, which however could have consequences for financial stability if they are not properly addressed. It therefore stresses the importance of addressing these issues as part of a comprehensive effective supervisory, regulatory and oversight framework.

The FSB also today published a roadmap to enhance cross-border payments that it has delivered to the G20. The establishment of effective regulatory, supervisory and oversight approaches for GSC arrangements will support the implementation of a key building block of the roadmap.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

G20 cross-border payments roadmap

On 13 October the FSB published a cross-border payments roadmap to make payments faster, cheaper, more transparent and inclusive. Jon Cunliffe, CPMI Chair and Deputy Governor of the Bank of England and Alejandro Díaz de León, Governor of Banco de México set out out concrete actions to deliver the roadmap.

BigTech firms in finance in emerging market and developing economies

12 October 2020 | PDF full text (804 KB)

This report considers market developments and financial stability implications from the provision of financial services by BigTech firms in emerging market and developing economies (EMDEs).

The report finds that the expansion of BigTech firms in financial services in EMDEs has generally been more rapid and broad-based than that in advanced economies. Lower levels of financial inclusion in EMDEs create a source of demand for BigTech firms’ services, particularly amongst low-income populations and in rural areas where populations are under-served by traditional financial institutions. The supply of financial services by BigTech firms in EMDEs has been supported by the increasing availability of mobile phones and internet access. Such technology – along with the data it generates and the flow of such data across borders – allows these firms to reach customers who were previously under-served, for example due to their lack of credit history. BigTech firms also make lending decisions based on novel sources of customer data, including from their core technology businesses.

The expansion of BigTech firms in EMDEs has had benefits but can also give rise to risks and vulnerabilities. It has also given rise to financial services that can be cheaper, more convenient, and tailored to users’ needs, thereby offering opportunities to improve consumer welfare and support financial stability. However the expansion of BigTech activity also gives rise to risks and vulnerabilities. Risks concerning consumer protection may also be larger in the case of EMDEs, particularly where customers have lower financial literacy, and when BigTech firms’ make greater use of personal data (including that acquired from their non-financial business). Where BigTech firms are the principal or even sole providers of financial services to some EMDE populations, they may be particularly prone to dominating the market for such services. They may also be subject to heightened operational risks, particularly in environments with weaker communications and financial infrastructure. Competition from BigTech firms may, in places, also reduce the profitability and resilience of incumbent financial institutions and lead to greater risk-taking.

The experience of some EMDEs demonstrates the positive role that strong regulation, supervision and other official-sector policy can play in supporting innovation in financial services and mitigating risks. Governments in some EMDEs have also driven the development of financial infrastructures and digital identity. In doing so, they have facilitated the growth of financial technology, including that employed by BigTech firms.

Risks to financial stability identified by survey respondents associated with BigTech firms’ provision of financial services: Risks rated moderate/large as a percentage of survey respondents (source: FSB survey)

Risks to financial stability identified by survey respondents associated with BigTech firms’ provision of financial services: Risks rated moderate/large as a percentage of survey respondents

The experience of EMDEs also underscores the need to apply the principle of ‘same risk – same regulation’ with respect to BigTech firms’ activities, whilst tailoring regulatory frameworks to reflect the relative size and scope of those firms’ activities. Financial authorities may also usefully contribute to the development of robust public policy and frameworks with respect to data governance, consumer protection and operational risk management.

FSB report considers financial stability implications of BigTech in finance in emerging market and developing economies

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Ref no: 35/2020

The Financial Stability Board (FSB) today published a report about market developments and financial stability implications from the provision of financial services by BigTech firms in emerging market and developing economies (EMDEs). The report is being delivered to G20 Finance Ministers and Central Bank Governors for their virtual meeting on 14 October.

The report finds that the expansion of BigTech firms in financial services in EMDEs has generally been more rapid and broad-based than that in advanced economies. Lower levels of financial inclusion in EMDEs create a source of demand for BigTech firms’ services, particularly amongst low-income populations and in rural areas where populations are under-served by traditional financial institutions. The supply of financial services by BigTech firms in EMDEs has been supported by the increasing availability of mobile phones and internet access. Such technology – along with the data it generates and the flow of such data across borders – allows these firms to reach customers who were previously under-served, for example due to their lack of credit history. BigTech firms also make lending decisions based on novel sources of customer data, including from their core technology businesses.

The expansion of BigTech firms in EMDEs has had benefits but can also give rise to risks and vulnerabilities. Use of technology has increased the efficiency with which financial services are provided. It has also given rise to financial services that can be cheaper, more convenient, and tailored to users’ needs, thereby offering opportunities to improve consumer welfare and support financial stability. However the expansion of BigTech activity also gives rise to operational and consumer protection risks and concerns about market dominance. Competition from BigTech firms may, in places, also reduce the profitability and resilience of incumbent financial institutions and lead to greater risk-taking.

The experience of some EMDEs demonstrates the positive role that strong regulation, supervision and other official-sector policy can play in supporting innovation in financial services and mitigating risks. Governments in some EMDEs have also driven the development of financial infrastructures and digital identity. In doing so, they have facilitated the growth of financial technology, including that employed by BigTech firms.

The experience of EMDEs also underscores the need to apply the principle of ‘same risk – same regulation’ with respect to BigTech firms’ activities, whilst tailoring regulatory frameworks to reflect the relative size and scope of those firms’ activities. Financial authorities may also usefully contribute to the development of robust public policy and frameworks with respect to data governance, consumer protection and operational risk management.

Notes to editors

The report published today is part of the FSB’s ongoing work to monitor market developments and assess the financial stability implications raised by FinTech. On 9 October the FSB published a report published a report on the use of supervisory (SupTech) and regulatory (RegTech) technology by FSB member authorities and regulated institutions.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB encourages broad and timely adherence to the ISDA IBOR Fallbacks Protocol

9 October 2020

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Ref no: 34/2020

The Financial Stability Board (FSB) welcomes the announcement today by the International Swaps and Derivatives Association (ISDA) of the forthcoming launch of its IBOR Fallbacks Protocol (the Protocol) and IBOR Fallbacks Supplement (the Supplement) for IBOR-linked derivative contracts. The FSB strongly encourages widespread and early adherence to the Protocol – by all affected financial and non-financial firms – which will be a major driver of transition for derivatives in all LIBOR currencies and a critical step in benchmark transition ahead of end-2021.

LIBOR transition is a G20 priority and remains an essential task that will strengthen the global financial system. The FSB reiterates its view that firms across all jurisdictions should continue their efforts to reduce reliance on IBORs where appropriate and, in particular, remove remaining dependencies on LIBOR by the end of 2021. As part of this, market participants are encouraged to understand the fallback arrangements that would apply if a permanent discontinuation of an IBOR or other interest rate benchmark occurred, and to ensure these arrangements are robust enough to prevent potentially serious market disruption in such an event. The Protocol and ISDA fallback language will create a readily available avenue to adopt fallbacks into most derivatives contracts and replace IBOR exposures with risk-free rate linked alternatives, once fallbacks have been triggered.

The FSB’s Official Sector Steering Group (OSSG) has engaged regularly with ISDA during the significant programme of work that it has undertaken since July 2016 to strengthen the robustness of derivatives markets as part of global benchmark reforms. The fallbacks and related triggers that will be implemented via the Protocol and Supplement are based on a series of open consultations by ISDA that have resulted in broad market consensus. The FSB encourages adherence to the Protocol as a tangible step that can be taken by both financial and non-financial firms to avoid disruptions in covered  derivatives contracts if the IBOR they currently reference is discontinued or, in the case of LIBOR, becomes non-representative. Widespread adoption of the Protocol will be necessary to ensure it is effective in mitigating risks at a system-wide level. Any market participants who choose not to do so for some or all of their relevant trades will need to take robust alternative steps, such as closing out these positions or appropriate bilateral amendments, to avoid the risk of disruption.

Andrew Bailey, Governor of the Bank of England and Co-Chair of the Official Sector Steering Group, said “Finalisation of the ISDA Protocol is an important step in addressing the stock of legacy Libor-linked contracts ahead of end-2021. I would like to thank ISDA for its work on ensuring markets now have a robust and trusted fallback for trillions of dollars of derivative contracts.”

“ISDA’s  Protocol is another important milestone in the movement off of LIBOR,” said John C. Williams, New York Fed President and CEO, and Co-Chair of the Official Sector Steering Group. “It’s vitally important that firms quickly sign onto the Protocol to ensure that existing derivatives contracts are equipped with strong fallbacks.”

The FSB and OSSG Co-Chairs thank ISDA for its work to deliver this critical step in benchmark transition.

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) chaired by Andrew Bailey (Governor, Bank of England) and John C. Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations. The FSB published its most recent annual progress report in December 2019 on implementation of the recommendations.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions: Market developments and financial stability implications

| PDF full text (1 MB)

This report finds that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.

The opportunities offered by SupTech and RegTech have been created by the substantial increase in availability and granularity of data, and new infrastructure such as cloud computing and application programming interfaces. These allow large data sets to be collected, stored and analysed more efficiently. Authorities and regulated institutions have both turned to these technologies to help them manage the increased regulatory requirements that were put in place after the 2008 financial crisis.

SupTech and RegTech tools could have important benefits for financial stability. For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real-time indicators of risk to support forward looking, judgement based, supervision and policymaking. For regulated institutions, the use of RegTech could improve compliance outcomes, enhance risk management capabilities, and generate new insights into the business for improved decision-making. For both authorities and regulated institutions, the efficiency and effectiveness gains, and possible improvement in quality arising from automation of previously manual processes, is a significant consideration.

SupTech is a strategic priority for an increasing number of authorities. Based on a survey of FSB members, the majority of respondents had a SupTech, innovation or data strategy in place, with the use of such strategies growing significantly since 2016.

Primary demand drivers for developing a SupTech strategy: No. of authorities who rank driver as most important (source: FSB survey)

Primary demand drivers for developing a SupTech strategy: No. of authorities who rank driver as most important

Authorities are also vigilant to possible risks that could arise from the use of SupTech and RegTech technologies. Survey responses indicated that the risk reported to be of greatest concern was around resourcing, followed by cyber risk, reputational risk and data quality issues. A particular risk is over-reliance on methods built on historic data, which could lead to incorrect inferences about the future, and the potential for limited transparency of SupTech and RegTech tools. Looking to the future, the potentially catalytic role of data standards and the importance of effective governance frameworks for the use of SupTech and RegTech were also emphasised.

The report includes 28 case studies giving practical examples on how SupTech and RegTech tools are being used. The report is being delivered to G20 Finance Ministers and Central Bank Governors for their virtual meeting on 14 October.

FSB report highlights increased use of RegTech and SupTech

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Ref no: 33/2020

The Financial Stability Board (FSB) today published a report on the use of supervisory (SupTech) and regulatory (RegTech) technology by FSB members and regulated institutions. The report finds that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike.

The opportunities offered by SupTech and RegTech have been created by the substantial increase in availability and granularity of data, and new infrastructure such as cloud computing and application programming interfaces. These allow large data sets to be collected, stored and analysed more efficiently. Authorities and regulated institutions have both turned to these technologies to help them manage the increased regulatory requirements that were put in place after the 2008 financial crisis.

SupTech and RegTech tools could have important benefits for financial stability. For authorities, the use of SupTech could improve oversight, surveillance and analytical capabilities, and generate real-time indicators of risk to support forward looking, judgement based, supervision and policymaking. For regulated institutions, the use of RegTech could improve compliance outcomes, enhance risk management capabilities, and generate new insights into the business for improved decision-making. For both authorities and regulated institutions, the efficiency and effectiveness gains, and possible improvement in quality arising from automation of previously manual processes, is a significant consideration.

SupTech is a strategic priority for an increasing number of authorities. Based on a survey of FSB members, the majority of respondents had a SupTech, innovation or data strategy in place, with the use of such strategies growing significantly since 2016. Authorities are also vigilant to possible risks that could arise from the use of SupTech and RegTech technologies. Survey responses indicated that the risk reported to be of greatest concern was around resourcing, followed by cyber risk, reputational risk and data quality issues. A particular risk is over-reliance on methods built on historic data, which could lead to incorrect inferences about the future, and the potential for limited transparency of SupTech and RegTech tools. Looking to the future, the potentially catalytic role of data standards and the importance of effective governance frameworks for the use of SupTech and RegTech were also emphasised.

The report includes 28 case studies giving practical examples on how SupTech and RegTech tools are being used. The report is being delivered to G20 Finance Ministers and Central Bank Governors for their virtual meeting on 14 October.

Notes to editors

The FSB will publish a report on BigTech firms in financial services in emerging market and developing economies in the coming days, as a follow-up to its November 2019 report on market developments and potential financial stability implications of BigTech in finance.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Fifth Progress Report – Countdown to 2021 in light of COVID‑19

7 October 2020 | PDF full text (284 KB)

This report provides an overview of the progress on the implementation of the second phase of the G20 Data Gaps Initiative (DGI-2).

Accurate and timely data are crucial for informing policy decisions, especially during a crisis. The progress made to date by participating economies under the DGI-2 has proven its value during the COVID-19 pandemic. Policymakers have been able to gain better access to key information to monitor risks in the financial and non-financial sectors as well as to analyse interconnectedness and cross-border spillovers, although further improvement is needed. In October 2009, the FSB and IMF published The Financial Crisis and Information Gaps, a report which responded to a request from the G20 Ministers and Governors to explore information gaps and provide appropriate proposals for strengthening data collection. The report, which set out a series of recommendations to address identified data gaps, was endorsed by G20 Ministers and Governors and led to the first phase of work (DGI-1). In September 2015 it was agreed that the DGI work should continue into a second phase (DGI-2).

The main objective of DGI-2 is to implement the regular collection and dissemination of reliable and timely statistics for policy use. DGI-2 also includes new recommendations to reflect evolving policymaker needs. Its twenty recommendations are clustered under three main headings: (i) monitoring risk in the financial sector; (ii) vulnerabilities, interconnections and spillovers; and (iii) data sharing and communication of official statistics. DGI-2 maintains continuity with the DGI-1 recommendations while setting more specific objectives for G20 economies to compile and disseminate minimum common datasets for these recommendations.

The report sets out the challenges encountered by participating economies during this pandemic and the remaining steps to implement the DGI-2 recommendations in 2021. The report highlights that:

  • The COVID-19 pandemic posed significant challenges to the 2020 DGI work programme, and thus participating economies agreed to extend DGI work by six months to December 2021.

  • Nevertheless, progress in implementing the DGI-2 recommendations continued, despite the challenges that COVID-19 poses. Positive developments include enhancements in compilation processes, data sharing arrangements, production and dissemination of additional tables, as well as instrument and sector breakdowns.

  • To continue addressing data needs beyond 2021, many participating economies support maintaining an organised international collaboration process.

  • The COVID-19 crisis has increased policymakers’ needs to obtain more granular, relevant, and reliable data. A possible new mandate could help address emerging policy questions. A general framework could be defined during 2021 and presented in the next DGI-2 progress report, which will be published in the second half of 2021 and delivered to G20 Finance Ministers and Central Bank Governors.

FSB and IMF publish 2020 Progress Report on G20 Data Gaps Initiative

Ref no: 32/2020

The Financial Stability Board (FSB) and International Monetary Fund (IMF) today published the Fifth Progress Report – Countdown to 2021 in light of COVID-19 on the implementation of the second phase of the G20 Data Gaps Initiative (DGI-2). The report will be submitted to the G20 Finance Ministers and Central Bank Governors ahead of their meetings in Washington D.C. in mid-October.

Accurate and timely data are crucial for informing policy decisions, especially during a crisis. The progress made to date by participating economies under the DGI-2 has proven its value during the COVID-19 pandemic. Policymakers have been able to gain better access to key information to monitor risks in the financial and non-financial sectors as well as to analyse interconnectedness and cross-border spillovers, although further improvement is needed.

This report provides an overview of the progress since the previous report in September 2019. It sets out the challenges encountered by participating economies during this pandemic and the remaining steps to implement the DGI-2 recommendations in 2021. The report highlights that:

  • The COVID-19 pandemic posed significant challenges to the 2020 DGI work program, and thus participating economies agreed to extend DGI work by six months to December 2021.

  • Nevertheless, progress in implementing the DGI-2 recommendations continued, despite the challenges that COVID-19 poses. Positive developments include enhancements in compilation processes, data sharing arrangements, production and dissemination of additional tables, as well as instrument and sector breakdowns.

  • To continue addressing data needs beyond 2021, many participating economies support maintaining an organized international collaboration process.

  • The COVID-19 crisis has increased policymakers’ needs to obtain more granular, relevant, and reliable data. A possible new mandate could help address emerging policy questions. A general framework could be defined during 2021 and presented in the next DGI-2 progress report, which will be published in the second half of 2021 and delivered to G20 Finance Ministers and Central Bank Governors.

Notes to editors

In October 2009, the FSB and IMF published The Financial Crisis and Information Gaps, a report which responded to a request from the G20 Ministers and Governors to explore information gaps and provide appropriate proposals for strengthening data collection. The report, which set out a series of recommendations to address identified data gaps, was endorsed by G20 Ministers and Governors and led to the first phase of work (DGI-1). In September 2015 it was agreed that the DGI work should continue into a second phase
(DGI-2).

The main objective of DGI-2 is to implement the regular collection and dissemination of reliable and timely statistics for policy use. DGI-2 also includes new recommendations to reflect evolving policymaker needs. Its twenty recommendations are clustered under three main headings: (i) monitoring risk in the financial sector; (ii) vulnerabilities, interconnections and spillovers; and (iii) data sharing and communication of official statistics. DGI-2 maintains continuity with the DGI-1 recommendations while setting more specific objectives for G20 economies to compile and disseminate minimum common datasets for these recommendations.

The member agencies of the Inter-Agency Group on Economic and Financial Statistics (IAG), are the Bank for International Settlements, European Central Bank, Eurostat, IMF (Chair), Organisation for Economic Co-operation and Development, United Nations and the World Bank. The FSB participates in the IAG meetings.

Press enquiries:

FSB: +41 61 280 8138, [email protected]

IMF: +1 202 623 4277, [email protected]