Commonwealth’s Stablecoin Model Law: A Template for 56 Countries
In June 2026, the Commonwealth Secretariat released its Model Law on Stablecoins, months after law ministers endorsed it at the Commonwealth Law Ministers Meeting in Fiji in February. At 109 pages, the text sets out how member countries could regulate the issuance and use of stablecoins if they choose to. Elsewhere, the US OCC and FinCEN are still writing rules under the GENIUS Act, the ECB has backed a stronger supervisory role for ESMA over EU crypto markets, and Hong Kong’s first two licensed stablecoin issuers, HSBC and Anchorpoint, are preparing to go live. The Commonwealth’s contribution is different. It does not bind anyone. It does not create a new regulator. It gives 56 member countries a shared drafting template to start from.
How the Model Law Came Together
The Commonwealth Secretariat has been doing this kind of work for years. Its earlier model laws on virtual assets, cybercrime, and electronic transactions were all built the same way. They are drafting templates. Member states can adopt them in full, adapt parts, or leave them alone. The wider drafting committee brought in central bank governors, regulators, law firms and audit specialists from the UK, Australia, India, Canada, the Caribbean and parts of Africa.
That mix is deliberate. The Commonwealth is unusually varied. It has a G7 economy in the UK, a G20 economy in India, and small island states with modest supervisory capacity, all sitting in the same room. Any framework meant to work across that range has to be flexible before it is anything else. The text is upfront about this. It calls itself principle-based and technology-neutral, and it sits as a second layer on top of the earlier Commonwealth Model Law on Virtual Assets. Countries that have already adopted the virtual assets framework can bolt this onto it. Countries that have not are encouraged to take both together. The principal Act does the AML and licensing work for crypto service providers in general. This Model Law adds the specific pieces on top: reserves, disclosure, provisions for algorithmic and DAO-issued coins, and cross-border compatibility.
The Four-Tier Design
The core of the design is a four-tier licensing system. The tiers do not run in a straight sequence: they start at the bottom with Tier 0 and Tier 3 for the smallest, lowest-risk issuers, and then climb through Tier 2 to Tier 1 for the largest ones. Tier 0 is a sandbox tier for pilots and capped issuance. Licences at this tier last twelve months and can be renewed once. Tier 3 covers niche or closed-loop stablecoins with limited use cases. Tier 2 covers issuers at moderate scale that are not big enough to threaten financial stability. Tier 1 is for the biggest issuers, whose failure could actually cause systemic harm.
The illustrative thresholds in Exhibit A, the Model Law’s suggested table for placing issuers into tiers by market capitalization, active user base, average daily transaction volume, and cross-border activity, give some sense of scale. Tier 1 begins above US$500 million in market capitalization, more than one million active users, and daily transaction volumes above US$100 million, with extensive cross-border activity. Tier 2 sits between US$5 million and US$500 million. Tiers 0 and 3 both stay at or below US$5 million; the difference between them is that Tier 0 is not permitted to do any cross-border activity at all, while Tier 3 is allowed a small amount. The text is careful to note these numbers are illustrative. A country adopting the Model Law can move them up or down.
The choice that matters most is that the supervising regulator changes with the tier. Tier 1 defaults to the country’s prudential regulator, which in most cases means the central bank. Tier 2 can sit with either the securities regulator or the prudential regulator, depending on whether the stablecoin is being offered as an investment product. Tier 3 falls to the VASP supervisor or an innovation cell. The drafters did not try to create a single crypto regulator. They took the more honest position that most Commonwealth countries already have three or four financial regulators, and the sensible thing is to split oversight by risk instead of forcing a merger.
Issuers are also expected to police their own movement between tiers. Section 15 requires quarterly threshold checks. If an issuer is getting close to a higher tier, it has 30 days to tell the regulator. If it crosses a threshold, it has five business days to file a plan to fix it. Reclassification is triggered at 80 per cent of the next tier’s thresholds, which gives the regulator a warning band rather than a hard trip. These are standard prudential supervision techniques borrowed from banking, and borrowing them intact was probably the right call.
The Reserve Rules
Almost every stablecoin regime in force today asks for 1:1 reserves in what regulators call High-Quality Liquid Assets, or HQLAs. In plain terms, HQLAs are cash and short-dated government securities that can be sold quickly at close to face value. The Commonwealth text starts in the same place. What sets it apart is Section 22, which puts reserves on a three-phase path.
Phase 1 is the conventional model: full 1:1 backing, and the reserve is not allowed to hold interest-bearing instruments. Phase 2 keeps the 1:1 requirement but permits interest-bearing reserve assets if the regulator approves them. Phase 3 is where it gets unusual. It allows partial backing, meaning less than 1:1, under stricter prudential oversight, additional systemic risk buffers, and tighter liquidity rules. Moving between phases needs regulator sign-off.
Phase 3 is, plainly, a door to fractional-reserve stablecoins, meaning stablecoins backed by less than a dollar of reserves for every dollar issued, similar to how a bank holds only a fraction of deposits in cash. The Model Law is clear the door is not meant to open in the near term. But even writing it into primary legislation is a step MiCA, the GENIUS Act and the Hong Kong Ordinance have all avoided. Phase 3 matters because the market is heading this way regardless: yield-bearing designs, tokenised money market funds and bank-issued stablecoins that lend against their reserves are all drifting away from full 1:1 backing. On balance, the Commonwealth instinct is the sounder one. Keeping the pathway in the text, bolted shut until the regulator turns the key, leaves the framework future-ready. MiCA and GENIUS have taken the safer near-term route but bought themselves a rewrite later.
The list of permitted reserve assets in Section 18 is short. Allowed: fiat currency held in regulated banks, government securities rated AA or better with maturities of 90 days or less, units in public money market funds that invest in government debt, and other HQLAs the regulator approves. Not allowed: corporate shares, other crypto-assets, anything issued by a related party, or anything illiquid or already pledged elsewhere. The exclusion of crypto-assets from the reserve is the one that matters most in practice. It shuts the door on crypto-collateralised stablecoin designs qualifying under the framework as drafted, though the regulator does keep room to allow hybrid models case-by-case.
Reserve requirements then move with the tier. Tier 1 issuers must hold 100 per cent HQLA backing, keep a US$10 million capital buffer, segregate user accounts, publish monthly attestations, run biannual audits, and disclose reserve composition on a 24/7 basis. Tier 2 needs 100 per cent backing, a US$2 million buffer, and biannual audits. Tier 3 drops to a minimum of 80 per cent HQLA backing plus US$100,000 in paid-up capital. Eighty per cent at Tier 3 is well below what MiCA, the GENIUS Act, Singapore and Hong Kong require. Whether any country actually adopts that number, or lifts it back to 100 per cent when legislating, will be one of the first signs of how the Model Law is being read on the ground.
Reading the Design
Both the tier system and the phased reserve path are trying to solve the same problem. They build proportionality into a law that has to work across 56 countries with very uneven stablecoin markets and very uneven regulators. The four tiers let a country avoid the two failure modes of a single-standard regime: setting the bar so high that pilots and small issuers cannot start, which a strict reading of MiCA or the GENIUS Act would do in most of the Commonwealth, or setting it so low that a systemic issuer escapes real oversight. Splitting supervision by tier also matches how financial regulation is already organised in most member countries — central bank, securities regulator, VASP supervisor — without asking anyone to consolidate. The three phases do the same job over time. Most regimes lock a reserve rule into primary legislation and then struggle to change it; the Model Law lets a regulator shift issuers from strict 1:1 backing to interest-bearing reserves, and eventually to partial backing, without going back to parliament. The trade-off is that both levers only work if regulators can classify accurately. Tier thresholds depend on market capitalisation, active users and daily transaction volumes that are hard to verify for offshore issuers, and the 80 per cent reclassification trigger is easy to sit just below. Phase transitions rest on regulator judgement, which works for a well-resourced supervisor and less well for a small one. If member countries diverge sharply in how they apply either lever, arbitrage between them becomes the likely outcome.
Algorithmic and DAO Stablecoins
Two sets of provisions do something few other regimes have written down clearly. Section 14(7) says that algorithmic stablecoins relying only on their own native token for collateral, what the text calls endogenous assets, can be disallowed by default unless the regulator specifically permits them. Any algorithmic stablecoin defaults to Tier 3. The issuer has to submit independent code audits, run stress tests, prepare a de-pegging contingency plan, and hold reserve buffers if it uses any hybrid collateral. The explanatory note names Terra and its associated coins, UST and LUNA, as the reason for the provision. That is a direct reference most regulators have avoided in primary legislation, preferring to handle Terra-style risk through general reserve requirements. The Commonwealth text takes the more explicit route.
DAOs get similar treatment. A DAO, or decentralised autonomous organisation, is an entity that makes decisions through code and token voting rather than through a company board. A DAO-issued stablecoin defaults to Tier 3 under the Model Law unless the issuer can show verifiable governance, an identifiable person responsible for compliance, M-of-N controls (which means a minimum number of authorised parties out of a defined group have to sign off before any treasury or protocol change goes through), independent audits of both reserves and smart contracts, and the ability to meet reserve and disclosure rules. If no legal person exists, the DAO has to appoint a compliance agent or legal representative. The Model Law refuses to let being decentralised on its own count as a reason not to comply. It also refuses to pretend DAOs do not exist, which is a middle path several other jurisdictions have struggled to write into law. Most regimes so far have gone one of two ways. Either they treat DAO-issued stablecoins as if they had a traditional issuer sitting behind them, which is easy to draft but hard to enforce when no such issuer actually exists, or they leave DAOs outside the licensing perimeter altogether, which then reappears as a supervisory gap when the coin reaches meaningful scale. The Commonwealth text takes the harder route of naming the specific things a DAO must produce – a responsible person, signature controls, audits – and treating those as the price of participating in the regulated market, rather than pretending the structural question can be avoided
The Cross-Border Architecture
Part VIII deals with how stablecoin regulation should travel across borders. The approach is equivalence, not centralisation. Under Section 36, a country’s regulator can recognise a foreign stablecoin regime as equivalent to its own if the foreign country meets FATF, FSB, BIS and IOSCO standards, offers comparable prudential and consumer protections, and has usable information-sharing arrangements in place. If equivalence is granted, issuers licensed in the foreign country can operate domestically without going through a fresh licensing process. Section 37 puts the operational side in: cooperation with foreign regulators, financial intelligence units, and standard-setting bodies. Section 38 takes it into the technical layer, asking issuers to comply with the ISO 20022 messaging standard used in mainstream cross-border finance, to support cross-chain communication protocols, and to integrate on-chain identity systems.
This is close to the opposite of what is currently being debated in Europe. The European Central Bank has been arguing for stronger centralised supervision of crypto markets across the EU through a beefed-up ESMA. The Commonwealth text bets on national regulators talking to each other and agreeing on shared standards, with the stricter rule prevailing where regimes disagree. Both approaches can be defended. But the Commonwealth version is the more realistic one for its member countries, most of which have no prospect of handing over supervisory power to a supranational body.
Where the Text Stops Short
The Model Law is careful in most places, and in a few it just declines the fight. Whether a stablecoin should be treated as a security, e-money, a payment instrument, or something new is left to member countries to sort out under their own financial services law. The line between a tokenised bank deposit and a stablecoin is not drawn. Yield-bearing stablecoins are addressed, in that the regulator can require additional reserves and liquidity buffers, but they are not classified as a separate product. The interaction with central bank digital currencies is acknowledged in the explanatory notes but not built into the operational provisions, which is a real gap given that India, Nigeria, Jamaica and the Bahamas, all Commonwealth members, are at different stages of CBDC rollout.
These are not oversights so much as choices. A non-binding model law works at the level of design. The hardest classification questions can only be settled by domestic legislatures and courts, and the drafters seem to have accepted that.
What It Means for India
India is a Commonwealth member, and the Model Law is on offer on the same terms as it is to everyone else. India’s current position on stablecoins is that there is no separate position. Stablecoins fall inside the broader virtual digital asset category alongside every other crypto-asset. They are taxed at 30 per cent on gains with a 1 per cent TDS on transfers, and AML supervision runs through FIU-IND. A broader VDA discussion paper from the Department of Economic Affairs has been in preparation but a final published version has not appeared.
If India were to move, three pieces of the Model Law would be directly useful. The tier structure maps well onto the way Indian financial regulation is already split across the RBI, SEBI, IFSCA and FIU-IND. Proportional supervision is already the operating instinct here. Second, defaulting Tier 1 to the prudential regulator points cleanly to the RBI for any rupee-backed stablecoin of scale, which would let it sit alongside the e-rupee rather than compete with it. Third, and probably the most useful piece, the equivalence mechanism in Section 36 gives India a workable way to handle offshore issuers such as Tether and Circle, whose dollar-pegged stablecoins already trade through domestic exchanges. A recognition-based path is more usable than the blanket recognition or blanket exclusion that has been floated in past drafts.
Whether any of this actually gets used is a separate question. The Indian discussion-paper process has moved slowly, and a template from a multilateral body will not on its own break that. But when the government does decide to move, having a base text, one shaped in part by Commonwealth-aligned practitioners, lowers the drafting cost of getting there.
Conclusion
The Commonwealth Model Law is not going to define global stablecoin regulation, and it was never meant to. What it does is give 56 different countries, starting from very different places, a text they can adapt. The design is sound. It is tiered, technology-neutral, and layered onto an existing virtual assets framework rather than trying to reinvent one. The provisions that go furthest, meaning the Phase 3 fractional reserve pathway, the equivalence-based approach to cross-border operation, and the explicit route for DAO issuers, are the ones to watch. They signal where the drafters expect the sector to move next. How much of that ends up shaping national law will depend less on the text and more on how many governments choose to use it.
References
- Commonwealth Secretariat. (2026). The Commonwealth Model Law on Stablecoins. London: Commonwealth Secretariat.
- Commonwealth Secretariat. The Commonwealth Model Law on Virtual Assets.
- Regulation (EU) 2023/1114 on Markets in Crypto-assets (MiCA). https://eur-lex.europa.eu/eli/reg/2023/1114/oj/eng
- Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, 2025.
- Hong Kong Stablecoins Ordinance, 2025.
- Monetary Authority of Singapore. Payment Services Act, 2019, as amended for stablecoin issuers.
- Financial Action Task Force. Recommendations 15 and 16 (Virtual Assets and Wire Transfers).
- Financial Stability Board. (2023). High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements.