In what feels like a coordinated global pivot, financial watchdogs are turning their regulatory spotlights toward two rapidly growing corners of the financial world: private credit and stablecoins. The Financial Stability Board (FSB), which coordinates financial regulations across G20 economies, announced yesterday it’s ramping up scrutiny of these sectors amid concerns about hidden systemic risks.
Private credit—essentially non-bank lending to businesses—has exploded to a $1.7 trillion industry. Meanwhile, stablecoins have become the backbone of crypto markets with over $150 billion in circulation. Both operate in regulatory gray zones that authorities now seem determined to color in.
“We’ve reached an inflection point where the size of these markets can no longer be dismissed as niche concerns,” explained Toronto-based financial regulation expert Melissa Chiang. “What regulators fear most is contagion risk—problems in these sectors spreading to the broader financial system.”
The FSB’s announcement follows months of warnings from central bankers and treasury officials that these fast-growing sectors need more oversight. For private credit, concerns center on leverage, concentration risk, and valuation practices that haven’t been tested in a major downturn. Many private credit funds have stepped in where traditional banks have retreated, particularly in financing middle-market companies and leveraged buyouts.
David Marchand, portfolio manager at GreyOak Capital, told me that increased regulation was inevitable: “The industry has enjoyed relatively light-touch oversight while ballooning in size. Regulators are playing catch-up to a market that grew faster than their rulebooks.”
The scrutiny comes as private credit has increasingly become a staple in institutional portfolios. Pension funds and endowments have flocked to the asset class seeking higher yields in a low-interest-rate environment. But questions persist about what happens when economic conditions deteriorate.
“The real test hasn’t come yet,” noted economist Patricia Menendez from the Peterson Institute. “Private credit deals often involve companies that couldn’t access traditional financing. We simply don’t know how these portfolios will perform in a prolonged recession.”
For stablecoins—cryptocurrencies designed to maintain a fixed value, usually pegged to the U.S. dollar—the regulatory concerns are different but equally pressing. Most stablecoins claim to be backed by reserves of cash and high-quality assets, but transparency around these reserves varies widely.
Circle, issuer of USDC, one of the largest stablecoins, recently increased its disclosure practices in what industry observers see as preparation for tighter regulation. “Serious players in the stablecoin space have been preparing for this moment,” said blockchain researcher Sanjay Kumar. “The question isn’t if regulation is coming, but what form it will take.”
The FSB’s new approach signals a departure from the patchwork of national regulations that has characterized oversight of both sectors so far. The board is pushing for consistent global standards that would make it harder for risks to build up in jurisdictions with lighter regulatory touches.
What makes the dual focus particularly interesting is how these sectors represent different sides of the same coin: innovative financial solutions operating outside traditional banking. Private credit funds provide financing where banks won’t; stablecoins offer payment and settlement infrastructure outside traditional currency systems.
Both have grown in part because they’ve operated with fewer constraints than banks. This regulatory arbitrage has allowed for innovation but potentially at the cost of building unmonitored risks.
The Bank of Canada’s recent financial stability report highlighted both sectors, noting that “shadow banking activities, including private credit, and crypto-assets pose emerging vulnerabilities that require enhanced monitoring.” Similar concerns have been echoed by the U.S. Federal Reserve, the Bank of England, and the European Central Bank.
For everyday investors, the regulatory shift means several things. First, private credit returns might compress as compliance costs increase and certain higher-risk strategies face limitations. Second, stablecoins will likely become more transparent but potentially less profitable for issuers as reserve requirements tighten.
The FSB has given itself a 12-month timeline to develop comprehensive recommendations for both sectors. Draft proposals are expected by spring, with public consultation periods to follow.
What remains unclear is whether regulators can strike the right balance: addressing legitimate risks without stifling innovation or driving activity further into truly unregulated spaces.
“There’s always a regulatory pendulum,” observed former financial regulator Thomas Wexley. “We’re now swinging back toward more oversight after a period of relatively unfettered growth. The challenge is calibrating that oversight to address real risks without overreacting.”
For companies operating in these spaces, the writing is on the wall: adapt to incoming regulation or face existential challenges. Several private credit managers have already begun enhancing their risk management frameworks and disclosure practices. In the stablecoin world, industry-led initiatives for self-regulation have accelerated, though many remain skeptical about their effectiveness without formal regulatory backing.
As we enter this new phase of financial oversight, one thing is certain: the days of regulatory gray zones for multi-trillion dollar markets are drawing to a close. The question now is whether the transition to a more regulated environment will reveal hidden vulnerabilities or strengthen these innovative financial sectors for the long term.
