Private credit markets and stablecoins need close monitoring, G20 watchdog tells leaders

LONDON (Reuters) -The boom in private credit markets and stablecoins warrants close monitoring, the Group of 20's financial risk watchdog told leaders ahead of their summit in South Africa.

In a letter to the G20 leaders published on Thursday, its Financial Stability Board Chair, Andrew Bailey, called for global efforts to "modernise and strengthen" financial regulations without compromising stability.

The letter also highlighted the growing role of non-bank financial intermediaries, including private credit markets, saying it will be one of the main focal points of the FSB's work next year.

It underlined the "urgency" of improving cross-border payments and developing "robust frameworks" for stablecoins - types of cryptocurrencies that are pegged 1:1 to a real-world currency or asset, usually the U.S. dollar.

"Divergences in regulatory and prudential frameworks across jurisdictions (around stablecoins) could add an additional layer of complexity and potential risk," Bailey's letter said.

"It will be equally important to consider how stablecoins can operate effectively and safely across borders." 

Policymakers outside of the United States worry the widespread adoption of dollar-backed stablecoins would partly 'dollarise' their economies, diminishing their monetary policy powers and creating issues around bailouts were they to ever be needed.

In his letter, Bailey also noted the failure of major economies to implement global banking standards, including Basel III.

The Basel Committee on Banking Supervision on Wednesday reiterated that "full and consistent" implementation of tougher capital rules remains its "highest priority".

The reforms, agreed in 2017, were the final piece of the post-financial crisis response but both the European Commission and Britain have delayed implementation of Basel 3.1 until 2027 as they wait for clarity from the U.S. which has pushed back against the plans.

In response to the pressure, Basel appears to be softening one aspect of its rules.

Basel Committee chair Erik Thedéen told the Financial Times on Wednesday that crypto exposure requirements needed to be revisited to reflect the "dramatic" rise in stablecoins since the rules were agreed three years ago.

The crypto framework is due to take effect on January 1, though neither the U.S. nor the UK has committed to that date.

(Reporting by Marc Jones and Phoebe Seers; editing by Kirsten Donovan)