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Mass use of stablecoins could boost illicit finance, money-laundering watchdog says

LONDON — Stablecoin digital currencies have the potential for mass adoption and could be used to launder money or fund terrorism, a global financial crimes watchdog said on Thursday, the latest authority to warn of the risks of the fast-growing crypto asset.

Countries and crypto-related companies should pinpoint such risks before stablecoins are launched and take measures to address them, the Paris-based Financial Action Task Force (FATF) said in a report.

Like cryptocurrencies such as bitcoin, stablecoins risk being used for financial crimes because of “their potential for anonymity, global reach and use to layer illicit funds,” said FATF, which underpins global efforts on money laundering and other financial crimes.

Stablecoins – digital tokens typically backed by dollars or other assets such as gold – have proliferated during the pandemic. Their potential to reduce the volatility typical of bitcoin could encourage their widespread use, FATF said.

Issuers of stablecoins should assess risks of new products and launch measures such as limiting anonymous transactions or using software to monitor suspicious activity, it added.

For “decentralized” stablecoins – where the issuer’s identity is not clear – countries should look at measures for those developing its code as well as those offering financial services involving stablecoins

Other regulators worry stablecoins could also upset financial stability if they become widely used or a sponsored by major tech or telecoms firms.

Stablecoins should comply with the same safeguards as their more traditional competitors in payments, the IOSCO group of securities regulators and the Bank for International Settlements said this month.

In the United States, the Working Group on Financial Markets, which includes the Treasury and Federal Reserve, is focusing on them as part of wider efforts to rein in crypto. (Reporting by Tom Wilson; Editing by Mike Harrison)