FSB Chair Addresses Stablecoin And Climate Risks

October 20, 2021
The Financial Stability Board (FSB) is keeping a close eye on cryptocurrencies and climate-related complexities, Governor Randal K. Quarles has said in a speech.

The Financial Stability Board (FSB) is keeping a close eye on cryptocurrencies and climate-related complexities, Governor Randal K. Quarles has said in a speech.

It has been almost a year since the FSB released its high-level recommendations for the regulation, supervision and oversight of global stablecoin arrangements.

In the last 18 months, crypto-assets market capitalisation has grown from less than $200bn to as much as $2.4trn, Quarles pointed out, adding that stablecoins on the other hand have increased from less than $10bn in market cap to more than $130bn.

Technology and innovation continue to advance rapidly, he noted, adding that standard-setters need to be mindful of whether their regulatory and supervisory approaches appropriately address risks, while preserving the benefits that innovation can bring.

“As these continue to develop, we continue to explore difficult questions. Are these digital assets currencies? Or securities? Deposits? They don't fit neatly into our regulatory buckets, and they operate in the digital ether where they can easily cross national borders,” he said.

Last week, the FSB issued a new report to highlight its findings as it monitors progress and seeks to coordinate the regulation of global stablecoins.

It concluded that digital assets are not current threats to global financial stability.

“Yet, as we've learned from some forms of non-bank financial intermediation, those products, services, and institutions that fall between the regulatory cracks one day can become systemic problems the next,” he pointed out, continuing that the goal of the FSB’s work is to guard against new risks that emerge from innovation without stifling this same innovation.

Financial stability in danger from climate change

Climate-related financial risk was also a running theme in Quarles' speech.

Environmental, social and governance (ESG) issues have become a matter of concern for the financial services industry globally, especially with the 2021 United Nations Climate Change Conference, otherwise known as COP26, taking place in Glasgow in a matter of weeks.

In July, Mastercard, Ant Financial and other payments industry players established a climate-focused coalition called Every Action Counts.

“The FSB must learn more about those risks to financial stability that are less well understood,” said Quarles.

Although there is a vast amount of international work ongoing in the realm of climate finance, there remains much to learn about the climate-related complexities outside the financial system, as well as within it, he pointed out.

In light of the increasing amount of international work related to climate, the FSB has developed a roadmap for the G20, which will help guide global efforts to understand and address the financial risks from climate change.

This sets out the way forward on disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches. However, Quarles cautioned: “Progress on the FSB's climate roadmap will depend on the collective efforts of the FSB, its membership of national authorities, and international organisations.”

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