On February 8, the House Financial Services Committee held a hearing titled, “Digital Assets and the Future of Finance: The President’s Working Group on Financial Markets” to consider legislative recommendations from the President’s Working Group (PWG) report on stablecoins (we previously discussed the report in an earlier Consumer Finance & FinTech Blog post here).
Nellie Liang, the Treasury Department’s Undersecretary for Domestic Finance, presented the report’s findings and emphasized the need for lawmakers to introduce a legal framework for stablecoins and other novel types of digital assets. “Current statutory and regulatory frameworks do not provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment product.”
Liang underscored that the legal framework must address the prudential risks of stablecoins: (i) the risk of stablecoin runs; (ii) payment system risks; and (iii) the risks due to concentration of economic power. Liang commented that much work remained to be done despite the the banking agencies’ recent crypto sprint and the SEC and CFTC’s assessment of authorities over digital exchanges.
Committee members expressed concerns that limiting stablecoin issuance to banks could have a negative impact on competition in the sector and on racial equity among its potential customers. Committee Chair Maxine Waters questioned whether technology companies should be allowed to issue stablecoins. Citing to the Liang to the historical “separation of banking and commerce,” Liang stated that, “[i]n this case, we believe stablecoins, as a payment instrument, should not be issued by a technology firm.”
Putting it into Practice: This hearing should be viewed in light of the recent push to regulate the use and transmission of virtual currencies (we previously discussed this recent trend in earlier Consumer Finance & FinTech Blog posts here, here, and here). Stablecoins, like other virtual currencies, are a hot topic among U.S. regulators where companies are dealing with unclear regulatory guidelines and confusion related to which agency regulates what aspect of cryptocurrencies. The regulatory frameworks that apply to stablecoin issuers and service providers are viewed by many to be inconsistent, creating opportunities for regulatory arbitrage and uncertainty among stablecoin users.