This month the Financial Stability Board presented G20 leaders with two reports which are likely to be instrumental in shaping the future of payments. One lays out a roadmap for enhancing cross-border payments whilst the other sets out recommendations for the regulation of global stablecoins. Both contemplate a busy agenda for both public and private stakeholders over the coming years.
FSB reports to the G20
For the October 2020 meeting of the G20 finance ministers and central bank governors, the FSB has presented two reports of high significance for the global payments industry.
- Roadmap for enhancing cross-border payments
The FSB laid out a roadmap for tackling inefficiencies in cross-border payments. These inefficiencies are a key challenge for the payments industry and a perceived driver behind new private money initiatives such as stablecoins. Addressing this issue is also a key pillar of the European Commission’s Retail Payments Strategy.
The roadmap primarily focuses on areas of improvement for the existing payments ecosystem, but it does also touch on alternative payment arrangements, such as central bank digital currencies and stablecoins.
- Final report on the regulation, supervision and oversight of global stablecoins
Following its consultation earlier this year, the FSB published its final report on global stablecoins. The recommendations outlined in the report have not changed substantially from those in the consultation paper (discussed in our previous blogpost). The report now also lays out a timetable for implementation.
A detailed roadmap for cross-border payments
The FSB’s roadmap (which builds on previous work) seeks to establish “ambitious but achievable goals” by setting out five themes which are broken down into 19 building blocks comprising specific action points. The complexity is indicative of the fact that there is a multitude of issues affecting cross-border payments and no silver bullet to solve them.
The five themes are outlined at a high level below.
- A joint public and private sector vision
This is a cornerstone for the project. It involves setting common targets to be agreed by relevant stakeholders and endorsed by the G20. To that end, a public consultation is due to be launched in May 2021. The FSB and other international standard-setters will also assess areas for improvement in the implementation of existing regulatory standards and look to develop new common standards for agreements relating to cross-border payment services.
- Coordinating regulatory, supervisory and oversight frameworks
This area aims to improve regulatory alignment between jurisdictions. As part of this, the FSB is looking to promote a more consistent application of standards around anti-money laundering and combating the financing of terrorism (AML/CFT) and foster digital identity frameworks, both areas of focus under the European Commission’s Digital Finance and Retail Payments Strategies.
- Improving existing payment infrastructures and arrangements
Operational inefficiencies in existing systems are seen as another key problem area. In particular, the FSB wants to facilitate adoption of payment-versus-payment mechanisms, widen access to systems, explore reciprocal liquidity arrangements across central banks, extend and align operating hours of key payment systems, and establish better links between payment systems.
- Increasing data quality and straight-through processing by enhancing data and market practices
Standardising data formats and protocols for data exchange is expected to improve transaction efficiency. The FSB hopes to harmonise technical standards for common message formats (such as ISO 20022) and APIs (application programming interfaces) for data exchange. It also wants to assess the scope for a unique global identifier that links to the account information in payment transactions.
- Exploring the potential role of new payment infrastructures and arrangements
This workstream will examine the scope for new multilateral platforms, global stablecoin arrangements and CBDCs. The action points complement the objectives under the FSB’s global stablecoin report as well as the recent joint central bank report on CBDCs.
Next steps for global stablecoin regulation
From now until December 2021, international standard-setting bodies are tasked with amending and/or providing guidance to supplement existing standards in light of the FSB’s stablecoin report. For example:
- The Financial Action Task Force (FATF) will be reviewing the implementation of its AML/CFT standards and considering whether any further updates are necessary.
- The Basel Committee on Banking Supervision (BCBS) will continue to assess the appropriate prudential treatment for different types of cryptoasset and consult on any specific measures.
- CPMI-IOSCO intend to provide more guidance on which factors should determine whether a stablecoin arrangement is systemically important and thus subject to its Principles for Financial Market Infrastructures (PFMI). They also plan to look at how systemically important stablecoins may comply with the PFMI (as a number of these principles pose challenges in this context) and whether there are any risks that are not appropriately addressed by the PFMI.
Meanwhile, national authorities are tasked with implementing the FSB recommendations and international standards in relation to both cross-border cooperation arrangements and their regulatory, supervisory and oversight frameworks.
The road ahead
Improving cross border payments and regulating global stablecoins are two important challenges for which international coordination is absolutely fundamental. These reports represent key milestones in the journey to tackle them, by establishing a global agenda. There now lies a long and busy road ahead through the implementation phase.