House subcommittee holds hearing on stablecoin regulation
The House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion recently held a hearing to examine stablecoins’ role in the payment system and to discuss proposed legislation for creating a federal framework for issuing stablecoins. A subcommittee memorandum identified different types of stablecoins (the most popular being pegged to the U.S. dollar to diminish volatility) and presented an overview of the market, which currently consists of more than 200 different types of stablecoins, collectively worth more than $132 billion. The subcommittee referred to a 2021 report issued by the President’s Working Group on Financial Markets, along with the FDIC and OCC (covered by InfoBytes here), in which it was recommended that Congress pass legislation requiring stablecoins to be issued only by insured depository institutions to ensure that payment stablecoins are subject to a federal prudential regulatory framework. The subcommittee discussed draft legislation that would define a payment stablecoin issuer and establish a regulatory framework for payment stablecoin issuers, including enforcement requirements and interoperability standards.
Subcommittee Chairman, French Hill (R-AR), delivered opening remarks, in which he commented that the proposed legislation would require stablecoin issuers to comply with redemption requirements, monthly attestation and disclosures, and risk management standards. Recognizing the significant amount of work yet to be done in this space, Hill said he believes that “innovation is fostered through choice and competition,” and that “one way to do that is through multiple pathways to become a stablecoin issuer, though with appropriate protections [to] prevent regulatory arbitrage and a race to the bottom.” He cited reports that digital asset developers are leaving the U.S. for countries that currently provide a more established regulatory framework for digital assets, and warned that this will stymie innovation, jobs, and consumer/investor protection. He also criticized ”the ongoing turf war between the SEC and CFTC” with respect to digital assets, and warned that “[w]hen you have two agencies contradicting each other in court about whether one of the most utilized stablecoins in the market is a security or a commodity, what you end up with is uncertainty.”
Witness NYDFS Superintendent Adrienne A. Harris discussed the framework that is currently in place in New York and highlighted requirements for payment stablecoin issuers operating in the state. In a prepared statement, Harris said many domestic and foreign regulators call the Department’s regulatory and supervisory oversight of virtual currency the “gold standard,” in which virtual currency entities are “subject to custody and capital requirements designed to industry-specific risks necessary for sound, prudential regulation.” Harris explained that NYDFS established “additional regulations, guidance, and company-specific supervisory agreements to tailor [its] oversight” over financial products, including stablecoins, and said the Department is the first agency to provide regulatory clarity for these types of products. She highlighted guidance released last June, which established criteria for regulated entities seeking to issue USD-backed stablecoins in the state (covered by InfoBytes here), and encouraged a collaborative framework that mirrors the regulatory system for more traditional financial institutions and takes advantage of the comparative strengths offered by federal and state regulators. Federal regulators will be able to comprehensively address “macroprudential considerations” and implement foundational consumer and market protections, while states can “leverage their more immediate understanding of consumer needs” and more quickly modernize regulations in response to industry developments and innovation, Harris said.