On November 1, the President’s Task Force on Financial Markets (PWG), FDIC and OCC announcement the release of a report on stablecoins – virtual currencies which, unlike Bitcoin, are backed by assets like gold or fiat money. Stablecoins aim to eliminate the hesitation of many consumers about traditional cryptocurrencies, namely their unpredictable volatility.
While the report acknowledges the benefits of stablecoins, it warns of a range of concerns related to the potential to destabilize races, disrupt the payment system, and concentrate economic power. The report urges Congress to act quickly to enact appropriate legislation ensuring that stablecoins are subject to a clear regulatory framework on a consistent and comprehensive basis. To this end, the report makes several legislative recommendations, including (i) the requirement for a regulatory framework for stablecoins supported by the FDIC; (ii) subject stablecoin wallet providers to appropriate federal oversight and appropriate risk management standards; and (iii) require compliance with activity restrictions that limit affiliation with business entities and limits on the use of user transaction data.
Also on November 1, the Treasury provided a fact sheet on the PWG report identifying the purpose of the PWG report, as well as the risks and recommendations provided in the report. CFPB Director Rohit Chopra issued a declaration on the same day, noting that although it is not a member of the PWG, the CFPB “will take several actions related to this market,” including its recent order from six major tech companies regarding their payment-related plans and practices (already discussed in a blog post on consumer finance and fintech here). In a similar declaration by Acting Currency Comptroller Michael J. Hsu, he noted his support for the report’s recommendation that “[s]table pieces need federal prudential oversight to grow and operate safely.
Put it into practice: This report should be viewed in light of recent regulatory pressure from other agencies to regulate the use and transmission of virtual currencies (we have already discussed this recent trend in previous Consumer Finance & FinTech blog posts here, here, and here). Stable coins, like other virtual currencies, are a hot topic among US regulators where companies face unclear regulatory guidelines and confusion over which agency regulates which aspect of cryptocurrencies. Stable coin issuers and owners should be aware of the rapid development of the business and the fact that stablecoins may be subject to regulation by several federal agencies.
Co-authored by Gabriel Khoury, Legal Officer in Sheppard Mullin’s Washington, DC office.
Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 309