Bank for International Settlements Develops Stablecoin Monitoring System

Monitor stablecoin balance sheets

The Innovation Hub (IH) Division of the Bank for International Settlements (BIS) has announced its priorities for 2023. This year’s business plan also includes a new project launched by IH’s London center to develop a monitoring system for stablecoins.

The name of the project is “Pyxtrial”. The name comes from the “Trial of the Pyx,” which began in England in the 13th century and refers to the rigorous inspection of newly minted British coins to ensure that they meet standards. Even today, every February, it is presided over by the High Court of Justice in London and performed as a ritual.

The Pyxtrial project aims to develop a platform for monitoring stablecoin balance sheets. “Most central banks do not have the tools to monitor stablecoins system-wide and avoid asset-liability mismatches,” IH said. As such, the project will investigate technical tools that can help regulators shape data-driven policy frameworks.

According to a Reuters report, the BIS will conduct various tests and simulations on several stablecoins and their balance sheets, and will release preliminary findings later this year. It is expected to clarify the actual situation of the assets backing stablecoins.

BIS and stablecoin standards

The BIS’s Committee on Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) released regulatory guidance for stablecoins last July. The guidance states that the principle of “same risk, same regulation” should be applied and that stablecoin arrangements should adhere to international standards for payment, clearing and settlement systems.

connection:Bank for International Settlements CPMI and IOSCO Issue Guidance on Stablecoins

In addition, the Group of Central Bank Governors and Supervisors (GHOS) of the BIS announced global standards for banks’ handling of crypto assets (virtual currencies) in December last year. For traditional banks, a limit of 2% of total assets in cryptocurrencies will be set, with the aim of implementation by January 1, 2025.

The new standard classifies cryptocurrencies into Group 1 and Group 2. Group 1 includes traditional financial assets that are tokenized, as well as stablecoins tied to the U.S. dollar. It also stipulates supervisory and regulatory requirements and risk tests for stablecoins to be classified as Group 1, and only “stablecoins issued by regulated entities with strong redemption rights and governance” are eligible. .

Unbacked cryptocurrencies and stablecoins without effective price stabilization mechanisms fall into Group 2.

connection:Bank for International Settlements (BIS) to cap cryptocurrency holdings in banks at 2%

State of Stablecoin Regulation

The market size of the top three stablecoins (USDT, USDC, BUSD) alone exceeds 16 trillion yen. In addition, as their value is tied to fiat currencies and their impact on financial stability is significant, regulatory authorities and central banks around the world have positioned the creation of appropriate regulatory frameworks for stablecoins as an important issue. there is

In Japan, a bill to regulate stablecoins was passed by the House of Councilors in June last year, and regulations are being developed.

connection:Revised Fund Settlement Act passed at plenary session of House of Councillors, introduction of regulations related to stablecoins

In Europe, a comprehensive bill on cryptocurrencies, called MiCA, which includes regulation of stablecoins, is expected to reach its final vote soon. On the other hand, in the United States, although a bill on stablecoins has been under discussion since last year, the bill has not yet been submitted.

In December last year, South Korea’s central bank argued in a report on cryptocurrency regulation that there should be special regulations on stablecoins and that the central bank should be responsible for their oversight.

connection:Bank of Korea Seeks Stablecoin Supervisory Authority

Meanwhile, in Hong Kong, on January 31 this year, the Monetary Authority announced a policy on the regulation of virtual currencies and stablecoins. For stablecoins, he outlined regulated activities and a comprehensive regulatory framework. We will assess the risk according to the structure of the stablecoin and will require license income for organizations that conduct related activities.

The regulatory principles set out by the agency call for full backing of stablecoins and redemption at face value. Therefore, unsecured stablecoins that stabilize value through arbitrage trading or algorithms are not allowed.

connection:Hong Kong Authorities Decide on Regulatory Policy for Virtual Currencies and Stablecoins

It should be noted that the Japanese Financial Services Agency (FSA) is also likely to tighten regulations on algorithmic stablecoins in the future, according to the presentation materials given at a lecture held in December last year.

connection:Financial Services Agency to Tighten Algorithmic Stablecoin Regulations

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