Payment stablecoins and their arrangements should be subject to a federal framework on a consistent and comprehensive basis through an act of Congress – including by requiring that stablecoins may only be issued by federally insured depository institutions, according to a report issued Monday by a presidential working group focusing on the digital currencies.
The report, issued by the Treasury Department’s “President’s Working Group on Financial Markets,” along with the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), also said that such federal legislation would complement existing authorities held by federal regulators meant to ensure market integrity, investor protection, and prevention of illicit finance.
“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options,” said Treasury Secretary Janet L. Yellen in a statement. “But the absence of appropriate oversight presents risks to users and the broader system.”
Key concerns that should be addressed in legislation, according to the report, include:
- Risks to stablecoin users and protection against stablecoin runs, which legislation should address by requiring stablecoin issuers to be insured depository institutions “which are subject to appropriate supervision and regulation, at the depository institution and the holding company level.”
- Payment system risk, which legislation should address by requiring 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,” the report stated.
- Systemic risk and concentration of economic power, which should be addressed by legislation that requires 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,” the report asserts. “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 meantime, the report states, the FDIC and OCC are committed to taking action to address risks falling within their jurisdictions, “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.”
The report states that 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 (FSOC) consider steps available to it to address the risks outlined in this report.”
The report also notes that work on digital assets and other payment innovations related to cryptographic and distributed ledger technology is ongoing throughout the Biden 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,” the report stated.
In a separate development, Consumer Financial Protection Bureau (CFPB) Director Rhohit Chopra said his agency is taking or will take three actions related to the report’s findings and recommendations:
- Soliciting public input on how Big Tech companies might leverage their existing online dominance to rapidly scale the use of digital payment networks, including cryptocurrencies. “Our solicitation for input follows the agency’s recent issuance of orders to Google, Apple, Facebook, Amazon, Square, and PayPal regarding their payments-related plans and practices,” Chopra added.
- Actively monitoring and preparing for broader consumer adoption of cryptocurrencies, noting that use of stablecoins can “trigger obligations under federal consumer financial protection laws, including the prohibition on unfair, deceptive, or abusive acts or practices.”
- Will closely engage with other members of the Financial Stability Oversight Council to determine whether to initiate designation proceedings and ascertain whether certain nonbank stablecoin-related activities or entities are systemically important.
President’s Working Group on Financial Markets Releases Report and Recommendations on Stablecoins