Stablecoins could be attractive to criminals and terrorists if they reach mass-adoption, warns the Financial Action Task Force (FATF) which nevertheless concludes that its revised standards can mitigate the risks - as long as these new coins are centralised.
The Facebook-led Libra project has caused watchdogs to scramble to investigate the benefits and risks of stablecoins and how they should be regulated. In October, the G20 called on FATF, the global standard setter for combating money laundering and terrorism financing, to look into the issue.
In its report, FAFT notes that "so-called stabelcoins" have the potential to spur innovation and improve financial inclusion but warns that if they reach mass-adoption, particularly if sponsored by large tech, telecomms or financial firms, they could be tapped by criminals and terrorists.
The chance of reaching mass adoption is higher for stablecoins than for many virtual assets precisely because they are sponsored by big firms and remain stable in value, says the report.
However, because mass adoption is likely to require a degree of centralisation, FATF concludes that its revised standards on anti-money laundering and countering the financing of terrorism - designed to address virutal assets more broadly - are up to the task of addressing the stablecoin threat.
"Importantly, central developers and governance bodies of so-called stablecoins will have AML/CFT obligations under the revised FATF Standards, where they are carrying out the activities of a financial institution or VASP [virtual asset service provider]," says the report.
FATF concludes by calling on the G20 to "lead by example" and implement the revised standards as a matter of priority.
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