International Bodies Confirm Application of Principles for Financial Market Infrastructures to Systemically Important Stablecoin Arrangements

The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.

The PFMIs are international standards published by IOSCO and the CPMI for payment, clearing and settlement systems. They establish basic principles for systemically important FMIs that operate these systems, with the aim of these standards being adopted by countries and regulators, preserving the stability of the financial system. Factors that may help to determine whether a stablecoin arrangement is systemically important include the size of the arrangement, the nature and risk profile of the arrangement's activity, the interconnectedness of the arrangement with the real economy and whether there are any alternatives to using the arrangement for payment or settlement. It is for the authorities in each jurisdiction to determine which arrangements are systemically important. The guidance provides clarification for both stablecoin arrangements and national authorities on how aspects of the PFMIs (e.g., the governance, risk management, settlement finality and money settlements provisions) apply to systemically important stablecoin arrangements.
 
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