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Global Stablecoins Become Regulatory Battleground

PAR002_123 • Dec 06, 2020

Congresswoman Rashida Tlaib targets Facebook’s Diem and other Global Stablecoins with the Stablecoin Tethering and Bank Licensing Enforcement Act. 

Diem USDC US Congress OCC Logos on White Background with Crossed Sabres

On December 2, 2020, three members of the U.S. Congress issued a press release concerning the introduction of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act. The proposed legislation seeks to increase the oversight and regulation of stablecoins and would require, stablecoin issuers to acquire banking charters, get approval from the Federal Reserve and hold FDIC insurance.

The new bill requires the potential issuer of a stablecoin to gain approvals from the FED, Federal Deposit Insurance Corporation (FDIC) and relevant banking bodies creating a new set of arguments that will define the next face of regulatory battles for the entire crypto industry. According to the official press release, any person involved in the issuance of a stablecoin or related product without the written approvals from regulatory authorities will be considered illegal. 


The Stable Act will require Stablecoin issuers to:

  • Require any prospective issuer of a stablecoin to obtain a banking charter.
  • Require that any company offering stablecoin services must follow the appropriate banking regulations.
  • Require that any company or bank issuing a stablecoin to notify and obtain approval from the Fed, the FDIC, and the appropriate banking agency 6 months prior to its issuance.
  • All stablecoin issuers must obtain FDIC insurance or otherwise maintain reserves by backing their stablecoin with the Federal Reserve.
  • They would also be required to undergo ongoing analysis of any systemic risk.

According to the press release, The STABLE Act seeks to remedy challenges the COVID-19 Pandemic has supposedly exposed in the banking system, such as barriers to accessing and utilising mainstream financial institutions, leaving many to look to the financial technology sector to meet the financial servicing needs for everything from faster direct payments, access to loans, and even access to bank accounts. 

The bill’s authors also attacked the traditional banking industry for a host of predatory practices while simultaneously suggesting that subjecting stablecoin issuers to the same rules and regulations the outcome will be different.

Congresswoman Tlaib said in a statement.

“Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of colour that traditional big banks have is and has been critically important. From the OCC to the Federal Reserve to those peddling stablecoins, the protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation.” 

The release also said vulnerable consumers “could be exploited and obscured by bad actors looking to issue stablecoins, like other shadow money issuers in the past.”


Rashida Tlaib in Front of US Flag


There was immediate pushback from the crypto community which argued that this is overly burdensome and would stifle innovation. In essence, the bill is applying a key component of banking regulation to the emerging stablecoin industry.


Jeremy Allaire, CEO of Circle, responded by making the following Statement on Twitter,


"The STABLE Act would represent a huge step backwards for digital currency innovation in the United States, limiting the accelerating progress of both the blockchain and fintech industry. Our industry is delivering solutions that materially improve the speed, accessibility and cost efficiency of payments and banking in the US, and around the world. Any act of Congress in this sphere should be focused on embracing, investing in and supporting the incredible pace of open innovation that is happening with stablecoins and blockchain infrastructure. Forcing crypto, fintech and blockchain companies into the enormous regulatory burdens of Federal Reserve and FDIC regulation and supervision is inconsistent with the goals of supporting innovation in the fair and inclusive delivery of payments that comes from stablecoins. While there is clearly a critical long-term role for the Fed to play in the development of the standards and supervision around stablecoins, that should emerge from high levels of public-private engagement and collaboration. This collaboration should be focused around the technical and governance standards for stablecoins, which may ultimately require new forms of charters and supervision that haven't yet even been considered. We look forward to constructive engagement with Federal agencies as leading private sector actors continue to innovate in this rapidly emerging field."

Jeremy Allaire Stable Act Tweet


The release also took aim at Acting Comptroller of the Currency (OCC) Brian Brooks for pro-cryptocurrency actions like allowing banks to custody digital assets for clients and proposing a rule that would prevent financial institutions from discriminating against industries.


On the next day the Acting Comptroller of the Currency Brian P. Brooks made the following statement at the meeting of the Financial Stability Oversight Council (FSOC) with respect to the issuance of FSOC’s 2020 annual report.



Statement by the Acting Comptroller of the Currency Regarding Issuance of FSOC's 2020 Annual Report


Office of the Comptroller OCC Emblem


"I support issuance of the FSOC’s annual report and the recommendations set forth in the report. I thank the FSOC staff and staff of the other agencies for their hard work on this report. I believe that the FSOC’s recommendations strengthen the progress we have already made to enhance risk management and prudential controls in our financial system.


I’m particularly supportive of the report’s treatment of innovation. Financial innovation offers considerable benefits to consumers and providers of financial services by reducing costs, increasing the convenience of payments, and potentially increasing credit availability. Innovation can also create new risks that need to be understood. Such risks underscore the need for the development of oversight standards, appropriate regulation, and U.S. leadership. Some nations have begun exploring or using central bank digital currencies to enhance the global standing of their currencies and enable faster payments. Likewise, several nations have begun assessing whether and how privately issued stablecoins may facilitate faster and more efficient payments, provided that such activities are subject to appropriate regulation and oversight. Against this backdrop, it is important that U.S. regulators adopt an approach to digital assets that will provide for responsible innovation in a manner that is safe, fair, and compliant with all applicable laws. Providing clear guidance will accelerate the development of a 21st century financial system that is consistent with the changing needs of institutions and consumers within the U.S. and that is globally competitive."




Understandably there are concerns from all sides with everyone wanting to provide consumer safety and confidence. But forcing all of this innovation into the banking system is the surest way to stifle innovation at a time when co-operation is needed most.


While much of the focus recently has been on the regulators, members of Congress are become more educated on this issue so we are going to start to see many policy battles that will have a direct impact on the crypto industry.




Source:


December 2, 2020 Press Release - Tlaib, García and Lynch Introduce Legislation Protecting Consumers from Cryptocurrency-Related Financial Threats - https://tlaib.house.gov/media/press-releases/tlaib-garcia-and-lynch-stableact)


News Release 2020-167 | December 3, 2020 - Statement by the Acting Comptroller of the Currency Regarding Issuance of FSOC's 2020 Annual Report - https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-167.html


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