On November 1, ehe United States President’s Task Force on Financial Markets (PWG) released its long-awaited report and policy recommendations for dealing with stablecoins. The document focuses primarily on the prudential risks that “payment stablecoins” (or those intended to maintain a stable value against a reference fiat currency) could pose to users and financial stability.
The key message from the PWG is that while the use of stablecoins is currently limited to facilitating digital asset transactions, under certain conditions this asset class could achieve much wider adoption by retail users, requiring a broad prudent federal framework that Congress should enact soon.
Here is a summary of the important points that the report raises, and others that it does not.
All the president’s men and women
The GTP is made up of the directors of the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Reserve System, while the Secretary of the Treasury Department is in charge of lead the group. The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) also contributed to the interagency report.
Given this formidable concentration of federal financial regulators, the results of their joint effort have been eagerly awaited as a reliable representation of the current administration’s position on the regulation of stablecoins.
Anonymous reports that emerged shortly before the document’s release claimed that the group had agreed to a plan to give the SEC significant authority over so-called stable tokens. This increased the suspense around the report, as such a regulatory designation would necessarily require a recategorization of the underlying asset class.
The prospect of the SEC taking the lead in regulating stablecoins left some players in the crypto space uneasy. Speaking to Cointelegraph ahead of the report’s release, C. Neil Gray, partner at the law firm Duane Morris, said:
“Industry participants likely see the SEC’s effort to take control in this area as just another example of the SEC’s overreaching in the cryptocurrency space, and the fear that the SEC will regulate stablecoins by enforcement. rather than the norm, as some perceive it is doing in other areas. “
However, for crypto users who stick to the rules, any kind of clarity is better than none. Sujit Raman, A partner in the privacy and cybersecurity practice at the Sidley law firm and a former assistant attorney general for the US Department of Justice, he noted that clarity on the limits of each regulator’s responsibilities remained welcome. Raman noted:
“In the absence of new legislation, stablecoins remain subject to the concurrent and potentially overlapping jurisdiction of a number of federal and state regulatory regimes. That is why any agreement between the relevant federal bodies on who will take the initiative to regulate stablecoins is important. “.
In the run-up to the report’s release, there were indications that the SEC was not the only US regulator looking to expand its presence in the digital assets sector.
Marc Powers (law professor, former SEC attorney, and Cointelegraph Magazine columnist) believes that while the SEC has been more active in law enforcement and guidance on digital assets over the past four years, the CFTC has asserted its jurisdiction over Bitcoin (BTC), that you have considered a commodity.
What’s more, CFTC Acting Chairman Rostin Behnam stated last week that up to 60% of digital assets can be classified as commodities, which is equivalent to proposing that the agency become the main cryptocurrency regulator in the US.
Finally, contrary to expectations, the interagency report did not prioritize any of the regulatory bodies. The authors concluded that “stablecoins, or certain parts of stablecoin arrangements, can be securities, commodities, and / or derivatives, “invoking the jurisdiction of the SEC and / or the CFTC accordingly.
This language remains very similar to what the PWG used in the early stages of exploring the stablecoin space. On the one hand, a December 2020 statement from the task force said that “Depending on its design and other factors, a stablecoin can constitute a security, a commodity or a derivative subject to the federal laws of securities, merchandise and / or derivatives of the United States. “
What’s more, Nothing in the language of the interagency report pointed to the SEC “taking the lead” in overseeing the stablecoin sector.
Waiting for Congress
While the main message of the report is the recommendation that Congress steps in and passes relevant legislation as soon as possible, the document’s drafters also address how regulators should manage risks induced by stablecoins before the legislature takes action.
In addition to the SEC and CFTC, which must continue to apply their current authorities to protect users from the prudential risks identified, The report calls on other relevant authorities, including the Department of Justice, the Consumer Financial Protection Bureau (CFPB) and the Financial Crimes Control Network (FinCEN), to study how existing laws might apply to the activity of companies. stablecoins in areas such as consumer protection, payments and money transmission services.
In particular, The report also leaves it up to the Financial Stability Oversight Board (FSOC), a group of US regulators that was created after the 2008 financial crisis, to designate some stablecoin activities (payments, clearing and settlement) as “systemically important “, which would trigger additional supervision. This is a scenario that cryptocurrency advocate Sen. Pat Toomey warned against in a recent letter to Treasury Secretary Janet Yellen.
Designating stablecoins as “systemically important” does not seem unworkable, especially in light of statements by some regulators in response to the report. On the one hand, CFPB Director Rohit Chopra has agreed to collaborate with other members of the Financial Stability Oversight Board to determine whether to initiate procedures to designate certain stablecoin-related non-bank activities or entities as systemically important.
Do you have to wait a long time?
The part of the report that refers to the distribution of regulatory responsibilities before (or in the absence) of congressional action is especially relevant, as the legislature is unlikely to act quickly on the stablecoin issue. Gray commented to Cointelegraph:
“No significant action from Congress in this area is expected in the short term, leaving the SEC and other agencies to occupy the space in the interim.”
Powers revalidated that point, adding that “The odds are great that Congress will not act with a comprehensive framework that covers all types of digital assets.”
In the meantime, it remains to be seen how much actual regulatory activity the report will provoke, given its non-binding nature.
Jackson Mueller, director of policy and government relations at digital asset firm Securrency, spoke to Cointelegraph shortly before the release of the GTP report, saying that I expected it to resemble a series of Treasury reports from several years ago responding to former President Donald Trump’s executive order on basic principles for regulating the American financial system.
Many of his recommendations, Mueller argued, were “quite vague or limited to encouraging regulators or Congress to continue working on a specific issue.” In the end, it was unclear “how many of the proposed recommendations went beyond the pages of those reports.”
While some of the recommendations in the PWG report are also fairly generic, at least one major implication – the potential acceleration of FSOC designating some aspects of stablecoin activity as systemically important – could affect the sector in a very tangible way.
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