Washington, D.C. – The Bank Policy Institute (BPI) and The Clearing House (TCH) commented today on two Financial Stability Board (FSB) consultative reports outlining approaches for the oversight and regulation of digital assets and global stablecoin arrangements, respectively. TCH and BPI support the FSB’s 19 recommendations in the consultative reports and its efforts to balance responsible innovation with comprehensive, clear and consistent rules. The frameworks could be further strengthened by 1. explicitly clarifying that the risks in the digital asset ecosystem primarily relate to activities of nonbanks, 2. calling on local authorities to define permissible activities for regulated banks and 3. establishing universal definitions distinguishing among types of digital assets and the risks each may present.

"BPI and TCH support innovation but believe it must be conducted in a manner consistent with the safety and soundness of the financial system, anti-money-laundering and countering-the-financing-of-terrorism standards, and robust consumer and investor protections," the letter states. Like the FSB, BPI and TCH firmly believe that the same activities posing the same risks should be subject to the same regulation. In this regard, the letter notes, "[The] comprehensive regulatory risk management framework distinguishes banking organizations from nonbanks, protects clients (including consumers), and promotes safety and soundness regardless of the activities in which banking organizations are engaged."

Some studies indicate that as many as 16% of American adults – approximately 40 million people – have invested in, traded or used cryptocurrencies. Most of this activity has occurred outside of the regulated banking sector, leading to catastrophic losses for consumers and less trust in the financial system, as occurred during the recent FTX collapse. An international framework promoting uniform standards across jurisdictions will help to ensure that:

1. Consumers, investors and businesses fully understand the benefits and risks of digital assets; 
2. Nonbanks operate under the same rules as banks, reducing opportunities for regulatory arbitrage and thus reducing risks to consumers, investors and businesses; and
3. Authorities provide banks with the clarity they need to safely meet customer demand for products and services using new technologies, including through the use of distributed ledger and blockchain technologies.

The two documents issued by the FSB are a consultative document titled "Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets" and a consultative report titled "Review of the FSB High-level Recommendations of the Regulation, Supervision and Oversight of 'Global Stablecoin' Arrangements." The first outlines nine recommendations and seeks to define the international standards and regulatory and supervisory approaches that would apply to crypto-asset activity across jurisdictions. The second document outlines 10 high-level recommendations to address global frameworks enabling the use of stablecoins. The FSB has signaled plans to coordinate with global regulators to begin implementing the recommendations in early 2023.

To access a copy of the letter, please click here.