Extract: Our response to question 9
Q9. Are the proposed recommendations appropriate and proportionate with the risks? Do they promote financial stability, market integrity, and consumer protection without overly constraining beneficial financial and technological innovation?
“We believe that the proposed recommendations are appropriate and proportionate given the very significant risks to financial stability and consumer protection associated with the potential emergence of inadequately regulated operators of GSCs. We welcome, in particular, the explicit recognition of users’/investors’ needs in Recommendations 8 and 9. We would suggest to further expand these recommendations to include, or emphasise the following points:
- Use of the term ‘stablecoin’ (Recommendation 2): in the interest of protecting retail users we would suggest to regulate the use of the term ‘stablecoin’ and to restrict its use to ‘stablecoins’ that conform to the characteristics of e-money, as discussed in Q1. above.
- Protection of personal data (Recommendation 6): Operators of stablecoin arrangements, such as wallet providers, in particular, continuously process large amounts of personal data of their users. Due to the inherently global reach of crypto-assets, in general, and stablecoins, in particular, this data may be processed in locations other than the home jurisdiction of the user. Participants in a stablecoin arrangement should be explicitly obliged to set up systems and controls to ensure that users’ rights to data protection, e.g. under the European Union’s GDPR3, are fully observed.
- Investor protection (Recommendation 8): protecting retail users against investing in unsuitable financial instruments is of prime importance. To the extent that a ‘stablecoin’ effectively represents a ‘tokenised’ security, e.g. a unit in a collective investment scheme (see Q4. above), relevant legal disclosures and safeguards, such as key investor information documents and suitability assessments4, should apply accordingly.
- Legal redress for users and indemnification (Recommendation 9): given the distributed structure of stablecoin arrangements it is of paramount importance to clearly assign responsibilities for compliance with user/investor protection provisions and suitable arrangements for effectively applying and enforcing infractions across borders. Every stablecoin arrangement should clearly identify the role and responsibilities of each participant, including, e.g., liability for losses to investors from management fraud or for compensation of damages from fraudulent mis- selling.
We recognise that the proposed recommendations primarily address ‘collateralised stablecoin’ arrangements and, to a lesser extent, ‘tokenised funds’. While we maintain that only the latter should be considered as ‘stablecoins’ for regulatory purposes, and be marketed to retail users as such, we fully agree that the proposed recommendations should also apply for ‘collateralised stablecoins’. We would also support expanding their application to encompass ‘algorithmic stablecoins’ and other crypto-assets, such as ‘virtual currencies’ (i.e. Bitcoin), to the extent practicable. We note, in particular, that authorities should have the powers and capabilities to prohibit ‘products’ and services that pose demonstrable risks to users in their jurisdiction.”