The President’s Working Group on Financial Markets (PWG), in partnership with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), has released a report on stablecoins. A stablecoin is a form of digital asset with a relatively stable value relative to the U.S. dollar. While stablecoins are primarily used to facilitate trading of other digital assets, they could play an increasingly important role in payments in the future.
“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payment options. But the absence of appropriate oversight presents risks to users and the broader system,” said Secretary of the Treasury Janet L. Yellen. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue. While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets.”
Increasing the use of stablecoins as a means of payment raises a number of concerns, such as the potential for destabilizing runs, disruptions of the payment system, and the concentration of economic power. The PWG report reveals gaps in the authority of regulators to curb these risks.
Stablecoins: Risks, Regulation and Enforcement
As a result of the risks associated with payment stablecoins, the agencies strongly recommend that Congress enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are governed by a consistent and comprehensive federal framework. This legislation would supplement existing authorities regarding market integrity, investor protection, and illicit finance, and address several key concerns:
- To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions.
- To address concerns about payment system risk, in addition to the requirements for stablecoin issuers, legislation should require custodial wallet providers to be subject to appropriate federal oversight. Congress should also provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities that are critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards.
- To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. Supervisors should have authority to implement standards to promote interoperability among stablecoins. In addition, Congress may wish to consider other standards for custodial wallet providers, such as limits on affiliation with commercial entities or on use of users’ transaction data.
In the immediate term, the agencies are committed to taking action to address risks falling within each agency’s jurisdiction, including efforts to ensure that stablecoins and related activities comply with existing legal obligations, as well as to continued coordination and collaboration on issues of common interest. While Congressional action is urgently needed to address the risks inherent in payment stablecoins, in the absence of such action, the agencies recommend that the Financial Stability Oversight Council consider steps available to it to address the risks outlined in this report.
As discussed in the report, in addition to the risks noted above, stablecoins may also raise investor protection, market integrity, and illicit finance concerns. To the extent activity related to digital assets falls under the jurisdiction of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), the SEC and CFTC have broad enforcement, rulemaking, and oversight authorities that may address certain of these concerns. To prevent misuse of stablecoins and other digital assets by illicit actors, Treasury will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue additional resources to support supervision of domestic AML/CFT regulations.
While the scope of this report is limited to stablecoins, work on digital assets and other innovations related to cryptographic and distributed ledger technology is ongoing throughout the Administration. The Administration and the financial regulatory agencies will continue to collaborate closely on ways to foster responsible financial innovation, promote consistent regulatory approaches, and identify and address potential risks that arise from such innovation.
Originally published here
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Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
