The President’s Working Group on Financial Markets (PWG), Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), issued its long-awaited Report on Stablecoins. In 2021 the reported exponential growth of Stablecoins was over 500% hitting a market cap of $127 billion compared to a mere $3.7 billion at the end of 2020.
The Report recommends that Congress promptly enact stablecoin-related legislation to comprehensively regulate stablecoins and stablecoin arrangements, and to address potential risks. The Agencies acknowledge that stablecoins could support faster, more efficient and more inclusive payment options. However, the report focuses on the prudential risks presented by the adoption of stablecoins as a means of payment that may result in harm to users and the broader financial system.
The Report includes;
(1) A high-level background on stablecoins
(2) A description of potential risks associated with stablecoins (potential 'runs', disruptions to the payment chain, rapid scaling of adoption)
(3) Recommendations to Congress for legislation or, absent such action, descriptions of potential regulatory actions
In particular, the Report requests that Congress pass “urgent” legislation that limits “stablecoin issuance. If Congress enacts the requested legislation, stablecoin issuers and other stablecoin participants could be required to obtain banking licenses or charters and to comply with the associated banking regulatory requirements.
The Agencies believe there are critical regulatory gaps relating to stablecoins, but they mostly question whether stablecoins are securities. The report notes that the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) may have authority to regulate aspects of stablecoins to the extent that a particular stablecoin is considered a security, commodity, or derivative but didn't provide any clarity on when that would be the case.
They did, however, recommend that Congress enact the following legislation to address the prudential risks:
In the European Union (EU), this subset of crypto assets has not escaped the eye of regulators, either, and their extensive coverage in the soon-to-be-ratified Markets in Crypto-Assets (MiCA) framework is a clear indication that the EU intends to have an important role in addressing potential risks that could arise from stablecoin issuance.
Stablecoins currently pose limited financial stability risks in the euro area, but their growing size, usage and interconnections call for urgent implementation of regulations and a potentially larger role for banks.
One of the standard requirements MiCA has laid out for all stablecoin issuers is to have in place “at all times” capital funds of either €350,000 (about $400,000) or 2% of their total reserve assets – depending on which one has the larger amount of funds.
There is currently a lack of transparency regarding stablecoins' reserve assets. However, Stablecoin Issuers like Denmarks eMoney.com which currently supports the Euro, Swiss Franc, Swedish Krona, Norwegian Krone and the Danish Krone, is dedicated to total transparency with quarterly reserve audits performed by Ernst & Young.
Stablecoin Issuers that are to work on a bank-like regulation such as Circle's USDC have taken a supportive stance for the regulatory recommendations indicating that the regulatory proposal’s represent significant progress for the industry’s growth.
The Joint Economic Committee of the United States Congress meets on Wednesday afternoon to discuss the regulation of Global Stablecoins and other cryptocurrencies, which different sectors of the country and the crypto industry have been calling for.
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