February 19, 2020
By Huw Jones
LONDON (Reuters) – Global financial regulators risk falling behind on rapid innovation in the digital payments industry and need to work more quickly to devise rules for crypto-currencies or “stablecoins”, the chair of a global finance watchdog said on Wednesday.
Central banks are worried that Facebook’s <FB.O> plans to launch its Libra digital currency could reduce state control over money around the world.
“FSB (Financial Stability Board) members recognise the speed of innovation in the area of digital payments, including so-called ‘stablecoins’, FSB Chair Randal Quarles said in a letter to finance ministers and central banks from the Group of 20 Economies (G20).
“We are resolved to quicken the pace of developing the necessary regulatory and supervisory responses to these new instruments.”
Quarles, who is also a U.S. Federal Reserve governor, said a working group was looking at policies to address the risks and benefits of stablecoins.
Possible regulatory responses would be put to a public consultation in April, he said.
G20 finance ministers said in draft conclusions of their meeting in Riyadh on Saturday and Sunday that risks from global stablecoins need to be evaluated and appropriately addressed before they start operation.
The FSB, made up of regulators, central bankers and governments from major economies, was created after the 2007-09 financial crisis to create an early warning system for risks in the finance industry before they become another global market meltdown.
Quarles also said in the letter it was a priority for the G20 to have an orderly transition from the tarnished Libor interest rate benchmark to safer rates compiled by central banks.
Libor is due to be phased out by the end of 2021, a huge task given its widespread use in home loans to credit cards worth $400 trillion globally.
“The official sector has warned that the question concerning Libor is when it will end, not whether it will end,” Quarles said.
“Nevertheless, some continue to speculate that Libor could remain in production indefinitely. This speculation is misguided.”
Quarles also highlighted the need to rein in so-called non-banking finance that includes asset managers, also dubbed “shadow banks”.
He said the shadow-banking sector now accounted for roughly half of global financial assets and needed “deeper understanding and coordination” among regulators.
The FSB tried to impose rules such as capital buffers on large non-banks, but this was torpedoed by securities regulators. This now might be revived in some form.
“As this sector grows and evolves, there may be new vulnerabilities that need assessment. The FSB is forming a group to consider what work is appropriate and whether to reorganise existing work on non-bank financial intermediation,” Quarles said.
The FSB will also organise a workshop between regulators, supervisors, and the private sector on possible regulatory approaches to the growing entry of Big Tech in finance, he said.
(Additional reporting by Jan Strupczewski in Brussels, editing by Jane Merriman and Hugh Lawson)
