Fitch Says Improved Regulation Could Moderate Stablecoin Credit Risks

Increased regulatory certainty regarding the status of stablecoin and their issuers may create market opportunities, as regulatory risks have deterred financial institutions from engaging in the space, Fitch Ratings said in a report published on Tuesday.

Fitch notes that the European Union is the first major economy to publish draft regulations for the sector and has called for issuers to be regulated like banks or electronic money institutions. An important regulatory report in the U.S. has also recommended that stablecoin issuers should be treated as insured banks, it added.Fitch views the U.S. regulatory approach as key to the medium-term development of the sector, as the majority of stablecoins currently traded are linked to the U.S. dollar.If stablecoin issuers secure charters to operate as deposit-taking institutions, they could “challenge incumbent banks and potentially non-bank payment providers,” the ratings agency noted.Transparency around the basic aspects of stablecoin arrangements, such as the legal rights of users, and reserve asset holdings, will be foremost when assessing the credit profile of stablecoin issuers, Fitch said.

Read more: Bank of America Sees Stablecoin Regulation as Catalyst to Mass Adoption

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