Global financial regulators and some of the world’s largest economies have published guidelines on the regulation and oversight of central bank digital currencies. In their report, they recognized the rapid growth and adoption of digital currencies and urged regulators globally to put in place concrete regulations before launching CBDCs.
The report was compiled and published by the Financial Stability Board, a body formed in 2009 by the G20 countries to monitor the global financial system. All G20 members, the International Monetary Fund (IMF), the World Bank and the Bank for International Settlements (BIS) were involved in compiling the report.
While recognizing the rise in prominence of CBDCs, the report pointed out that they will challenge the effectiveness and comprehensiveness of the existing financial regulations. As a result, the FSB had set out regulatory recommendations that it believes will promote innovation while still allowing regulators to provide oversight and protect investors.
“The recommendations call for regulation, supervision and oversight that is proportionate to the risks. Authorities agree on the need to apply supervisory and oversight capabilities and practices under the “same business, same risk, same rules” principle,” the FSB stated.
The board called on regulators globally to establish or adjust cooperation arrangements among themselves by December 2021. This will help them regulate the industry better as CBDCs are global and not limited to just one jurisdiction.
Regulators should also establish regulatory and oversight frameworks consistent with international standards by July 2022. By July 2023, they should review the implementation of their CBDC regulations and assess the need to refine or adapt international standards. Beyond 2023, the FSB will continue to review its recommendations to identify any potential gaps.
Some of the recommendations on the 73-page report included the need for clear allocation of accountability, the importance of risk management frameworks in regards to AML/CFT and cybersecurity safeguards, the need for robust data collection and storage systems, recovery and resolution plans and legal clarity regarding redemption rights for the users.
The FSB report comes just days after the BIS partnered with seven of the largest central banks to release a report on the principles and core features of CBDCs that other central banks globally must adhere to. The Bank of Japan, which was one of the seven members, released its own CBDC report days later, revealing that it’s set to begin its digital yen proof of concept in 2021.
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