G20 Watchdog Warns Nations to Mitigate Risks Posed by Libra-Like Stablecoins

The Financial Stability Board (FSB) has warned national regulators to review standards and address any possible disruptions caused by global stablecoins such as libra.

In a consultation report published Tuesday, the FSB – a G20 body advising on ways to improve the global financial system – said many activities associated with stablecoins were already covered by regulatory frameworks, but there are other risks for which national regulators could be left unprepared.

The organization argued that much of the technology and mechanisms used in stablecoins were untested at scale, meaning functioning digital assets may have hidden vulnerabilities that emerge only as they gear up for mainstream use.

“If users relied upon a stablecoin to make regular payments, significant operational disruptions could quickly affect real economic activity,” the FSB said in its report. “Large-scale flows of funds into or out of the GSC [global stablecoin] could test the ability of the supporting infrastructure to handle high transaction volumes and the financing conditions of the wider financial system.”

See also: Cryptos Could Challenge ‘Any Financial Framework’: New FSB Chair

The watchdog also said national regulators need to monitor the fast pace of innovation in the digital asset space to try and anticipate any weaknesses or regulatory holes before they take effect. All member countries should “clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by GSCs.”

Because stablecoins work across borders, the FSB argues countries should coordinate and consult with how other countries regulate stablecoins. A joint approach could encourage consistency and reduce “opportunities for cross-sectoral and cross-border regulatory arbitrage,” it said.

Countries applying regulation on a sector-by-sector basis might need to change to ensure stablecoin activity is properly covered, according to the report.

Although the FSB doesn’t mention libra by name, the report talks about some of the concerns that have been raised since Facebook unveiled the digital currency project last June. For example, it warns developing economies might fall under the influence of foreign institutions should stablecoins replace their local fiat currencies.

The FSB’s call for comprehensive and transparent stablecoin regulation mirrors other doubts surrounding libra. Earlier this year, Mastercard’s then-CEO said one of the reasons the payment processing company exited the Libra Association was on concerns its hazy regulatory status could make it a haven for money launderers and other criminals.

See also: Libra Association Exec: World Needs Us Because Bitcoin Is ‘Not a Means of Payment’

The stablecoin report is currently in public consultation, with the FSB looking for additional feedback from 68 member institutions, which include enforcement agencies from the U.S, China and the European Union as well as entities including the World Bank, International Monetary Fund and Bank for International Settlements.

The public consultation period will extend until July 15, with a final report not expected until October.