On December 15, 2022, Circle submitted comments to the Financial Stability Board’s (FSB) proposed framework for the international regulation of crypto-asset activities and the regulation and supervision of “Global Stablecoin” Arrangements. Circle appreciates the critical role that the FSB plays in promoting international financial stability, particularly in developing standards that many G20 countries adopt nationally. Circle believes that countries should adopt balanced regulations for crypto-asset activities, including stablecoin issuance, to advance user protection and the benefits of blockchain technology.
Circle offered suggestions for how the FSB could improve both sets of recommendations by leveraging the benefits of digital currencies to enhance the stability and transparency of the global financial system. Engagement with the FSB and other international bodies, as well as national regulators, has always been a core tenet of Circle’s business. We remain committed to being a leader in the industry as it achieves its full potential.
Circle’s Key Points
Circle made the following comments:
- Systemically important stablecoins should be fully-reserved tokenized cash
For payment stablecoins that are large and systemically important enough to be categorized as a “global stablecoin,” Circle supports requiring them to be fully reserved by cash and the highest quality government debt. “Tokenized cash” stablecoins carry far less liquidity, credit, market, and other risks than other stablecoin designs, including tokenized deposits and other partially fiat-backed models.
- Personal wallets provide user benefits and don’t inherently pose a greater risk
The misconception that personal, non-custodial wallets are somehow riskier than custodial wallets from a money laundering perspective must be dispelled. The Financial Action Task Force’s 2021 Updated Guidance acknowledges that data and evidence have shown that personal wallets are not inherently riskier than custodial wallets. Personal wallets have myriad benefits for users’ privacy, self-determination, financial choice, cost of financial services, security of funds, and financial inclusion, among other things.
- “Global stablecoin arrangement” should be disaggregated
The FSB’s conception of a “global stablecoin arrangement” may include multiple, independent entities with limited ability to coordinate such as stablecoin issuers, network validators, wallet providers, and others. We encouraged the FSB to provide additional clarity regarding exactly what regulatory responsibilities each component part of a “global stablecoin arrangement” might have.
- Public blockchains promote choice and reduce concentration risk
The dispersion of financial functions across multiple entities is a benefit, not a drawback, of public blockchains. While, for example, custody of assets may be historically paired with lending, public blockchains enable competition at every level of the financial system which creates more user choice while reducing tendencies toward destabilizing, “too-big-to-fail” vertical integration.
- A tiered redemption model provides user choice and financial stability
National authorities should endorse a tiered redemption model for stablecoin token holders that allows token holders to exchange their stablecoins for fiat cash at a variety of financial institutions rather than forcing them to become a customer of the issuing entity. This model reduces the concentration of operational risk in the issuer while promoting user choice and a quicker, more efficient user experience. Tiered redemption should also be paired with a proper recovery and resolution plan in the case of a stablecoin issuer’s failure.
- Global coordination includes ensuring that participating jurisdictions adhere to the standards set
As a coordinating body, the FSB’s recommendations should both establish the minimum regulatory standard while also discouraging jurisdictions from overlaying complicating and potentially conflicting measures. A future FSB implementation review should include analysis of where regional or national regulation has gone beyond the FSB’s recommendations and created a hostile environment for stablecoins. Examples might include jurisdictions with outright stablecoin bans, caps on issuance and usage, prohibitions on regulated third-party financial institutions providing interest on stablecoin holdings, or similar regulatory disadvantages compared with other forms of digital money.
- Regulators and industry need greater clarity around the definition of “global stablecoin”
All crypto-assets are inherently global. As such, the FSB should provide additional detail regarding exactly what characteristics, and what magnitude of each characteristic, define a stablecoin of systemic importance. A “global stablecoin” classification should be quantitatively derived, similarly to the classification of Global Systemically Important Banks.
Circle’s full comment letter can be found here.