Analysts at the Bank for International Settlements (BIS) found significant divergence in the approaches of different jurisdictions to regulating stablecoins, which could result in a slowdown in asset usage within the international financial system.
According to the BIS report, the global use of stablecoins is limited due to the fragmentation of international regulation. A standardized approach to their regulation is needed to integrate stablecoins into the international financial system.
The report notes that the regulatory approach across jurisdictions is similar in a few ways, namely:
- authorization of issuers;
- reserve requirements;
- risk management;
- anti-money laundering (AML) measures.
However, the regulatory framework has significant differences regarding the structuring of the issuance of stablecoins. According to the BIS analysts, these differences could result in stablecoins being subject to the banking sector or securities market regulations, significantly reducing their potential for use as a means of payment.
Analysts also noted that different jurisdictions have different approaches to defining stablecoins. For example, algorithmic stablecoins in the U.K., Japan, and Singapore are regulated by separate legislation, while in the UAE, they’re banned altogether. Audit and liquidity requirements also vary widely.
The BIS analysts called on governments to cooperate internationally to unify the approach to regulating the stablecoin market, particularly to standardize disclosure, risk management, redemption, and other aspects of stablecoin issuance and distribution. A unified international approach to regulation will help mitigate risks, prevent regulatory arbitrage, and ensure fair competition in the digital ecosystem.
In 2022, more than 80% of the world’s countries had no regulatory framework for using stablecoins, and in 2023, about 60% of jurisdictions already regulated the stablecoin market. Despite the increasing activity of regulators, stablecoins account for over 60% of the volume of illegal crypto transactions.
