The International Securities Commissions Organization (IOSCO) said in a new report that it believes global stablecoin initiatives could be subject to securities regulations.

The 31-page review of regulatory issues around stablecoins, cryptocurrencies with prices tied to a reserve of low-volatility assets, stressed that jurisdiction and regulation ultimately depends on project specifics.

IOSCO looked at a hypothetical stablecoin run by the governance board of a company, backed up by a basket of global reserve currencies and settled on its own private blockchain. It could only be issued to “authorized participants” buying and selling the stablecoin, and can be passed between digital wallets of users.

No specific stablecoins were mentioned by name in the report (though the example looks very much like the Facebook-led Libra project).

IOSCO has found from its hypothetical analysis that such a scheme could fall within the purview of securities regulators.

Because a stablecoin can be used for payments, an activity that “could potentially amount to regulated payment and banking activities or even regulated payment systems,” the report states. “If adopted at a large scale it could become systemically important”.

According to IOSCO, if the coin project were to grow into a financial market infrastructure (FMI), “it would be expected to comply with” the Bank for International Settlements ‘ principles for FMIs (PFMIs).

Moreover, the reserve fund of the stablecoin and related interests or obligations “could amount to various types of securities products, depending on their structure and function”.

The conclusion casts another potential roadblock in the development and implementation of stablecoins, particularly those which may grow to be integral to the infrastructure of the financial markets.

“It may be challenging for some systemically important stablecoin arrangements to comply with the high standards of the PFMI, particularly for those systemically important stablecoin arrangements that are partially or highly decentralised,” the report says.

That might complicate the paths of stablecoin projects aiming to embrace the core ethos of crypto: decentralization.

The Libra Association is the world’s highest-profile stablecoin initiative to date, and the distribution of its governance model and consensus mechanism over the next five years has been notably bullish.

“An important objective of the Libra Association is to move toward increasing decentralization over time,” Libra wrote in its white paper.

IOSCO argues in the report, though, that “the more decentralised the arrangements are, the higher the challenges may be.”

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