Here Is The “Final Guidance” From BIS And IOSCO On “Stablecoin Arrangements”




A set of guidelines covering payments, clearings, and settlements is what the Bank for International Settlements (BIS) hopes to develop for the stablecoin sector.

The International Organization of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures of the BIS described their “final guidance” on “stablecoin arrangements” in a study that was published today and provided to

IOSCO group develops international norms for the securities markets in about 115 countries.

In a news release, the groups added that “recent developments in the cryptoasset market” have “once again increased urgency for authorities to address the potential hazards posed by cryptoassets, including stablecoins more broadly.”

The organizations claimed that a “stablecoin arrangement” that is “systemically essential” must have “proper governance arrangements” in place.

Additionally, according to the bodies, token issuers must ensure that their ownership and organizational structure “provide clear and direct lines of duty and accountability.”

Additionally, the paper’s authors underlined the requirement for transparency in this area and a governance framework that “allows for rapid human involvement as and when needed.”

The authors emphasized the significance of risk management, suggesting that stablecoin operators should “frequently examine” any “substantial risks” inherent to working with connected parties in their ecosystems. In addition to “settlement banks, liquidity providers, validating node operators and other node operators, or service providers,” these could also comprise “essential financial market infrastructures.”

The stablecoin operators must “deliver unambiguous and guaranteed final settlement, at a least by the end of the value date, regardless of the operational settlement mechanism utilised,” the authors continued, ideally in “real-time.” Elements of “settlement finality” are also crucial.

The authors also outlined the need for token operators to “clearly identify the moment at which a transfer of a stablecoin” through an operational mechanism “becomes irrevocable and unconditional” to make sure that a “clear legal basis” could “acknowledge” and “support” the finality of transfers.

The report’s authors stated that token operators needed to ensure they had “little or no credit or liquidity risk” about settlements.

They are also required to make users aware of their legal obligations to give token holders a “direct legal claim on the issuer” or “interest in the underlying reserve assets” for “timely convertibility” into “other liquid assets, such as claims on a central bank.”

The BIS and IOSCO focused on the necessity of the “clarity and enforceability” of any legal claims to limit “credit and liquidity risks” in settlements as an “acceptable alternative to the use of central bank money.” The same should hold for “third-party guarantees” and claims involving management organizations that have reserve assets, the authors said.

The “degree” to which operators’ reserve assets may be liquidated “at or close to average market prices” should also be clarified.

A stablecoin’s underlying money should be convertible in “both regular and stressful circumstances,” the bank and its partner added, noting:

“The issuer of the stablecoin, provider of the settlement accounts, and custodian of the reserve assets’ creditworthiness, capitalization, access to liquidity, and operational dependability.”

The authors concluded that governments needed to ensure that new stablecoin legislation applied to “reserve managers and custodians” of the assets backing tokens and token issuers.

About the author, Awais Rasheed

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