A stricter regulatory framework is proposed by BIS in their guidance on stablecoin policy
In a series of recent papers, the Bank for International Settlements (BIS) has outlined a new regulatory approach for stablecoins, acknowledging that the traditional principle of "same risks, same regulations" faces significant limitations when applied to these digital assets.
The BIS, in its 2025 bulletin, advocates for a more tailored and potentially more restrictive regulatory approach to address the unique challenges posed by stablecoins. These challenges include financial stability risks, monetary sovereignty concerns, and foreign exchange regulation compatibility issues.
One key potential policy approach suggested by the BIS is a more restrictive regulatory regime. This would involve adopting a heightened regulatory stance that goes beyond simply aligning stablecoins with existing financial regulations. The focus would be on the unique features and risks of stablecoins to mitigate systemic risks and ensure soundness, considering their potential as "unsound money."
Another approach involves issuance and operational restrictions. Regulations like those proposed in the recent GENIUS Act would limit stablecoin issuers to certain activities and prohibit tying conditions or yield offerings on stablecoins to reduce incentive-driven risks and maintain financial integrity.
The BIS also emphasises the importance of licensing and local incorporation requirements for stablecoin issuers. This would ensure proper supervisory oversight and reduce risks from overseas unregulated stablecoins. Some jurisdictions, such as the EU, Japan, and Singapore, already require stablecoin issuers to be licensed and locally incorporated.
Enhanced disclosure and transparency are also crucial, with issuers required to publicly disclose audited financial statements to contribute to investor and consumer protection. This increases trust and regulatory oversight, similar to traditional deposit-taking institutions.
Given the borderless nature of stablecoins, cross-border coordination and oversight are essential to effectively manage cross-border risks and avoid regulatory arbitrage or gaps that could undermine market integrity and stability.
The BIS also addresses concerns about broader use of foreign currency-denominated stablecoins, suggesting that regulatory frameworks may need to be developed to protect national monetary sovereignty and enforce existing foreign exchange controls more effectively.
In summary, the BIS calls for a fundamentally different, multi-faceted regulatory approach that includes more restrictive regimes, licensing requirements, operational restrictions, enhanced transparency, and international coordination to effectively address the challenges that stablecoins pose to the financial system, going beyond traditional regulatory paradigms.
The call for a more restrictive regulatory approach for stablecoins comes at a time when the use of these digital assets is on the rise. The stablecoin genie is now out of the bottle, with President Trump's administration embracing private digital currencies and stablecoin issuer Circle trading at more than six times its recent IPO price. However, the BIS's recent papers have been criticised for being one-sided, with little acknowledgement of any potential stablecoin utility.
References: [1] Bank for International Settlements (2021). "Stablecoin growth - policy challenges and approaches." [2] Bank for International Settlements (2021). "Central bank digital currencies: foundational principles and core features." [3] Congressional Research Service (2020). "Stablecoins: An Introduction." [4] Financial Action Task Force (2019). "Virtual Assets and Virtual Asset Service Providers: 2020 update to the FATF Recommendations."
- The Bank for International Settlements (BIS) advocates for a tailored regulatory approach for stablecoins, suggesting a more restrictive regime that focuses on unique features and risks, including financial stability risks, monetary sovereignty concerns, and foreign exchange regulation compatibility issues.
- In addition to a more restrictive approach, the BIS proposes issuance and operational restrictions, such as limitations on stablecoin issuer activities and prohibitions on tying conditions or yield offerings to reduce incentive-driven risks.
- To ensure proper supervisory oversight and reduce risks from overseas unregulated stablecoins, the BIS emphasizes the importance of licensing and local incorporation requirements for stablecoin issuers.
