CRS Reviews Current Regulatory Framework on Stablecoins
The Congressional Research Service ("CRS") reviewed the current regulatory framework on stablecoins in anticipation of legislative debate on proposals to, among other things, strengthen consumer protections.
In the report, CRS defined stablecoins as digital financial instruments that aim to eliminate volatility by pegging their value to a stable asset, such as the U.S. dollar. CRS noted the "recent instability and failures in stablecoin markets" which have raised systemic risk concerns. CRS highlighted the current regulatory framework, including the role of federal and state regulatory agencies and "the guidelines established by entities such as the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC. CRS also reviewed regulator (i.e. SEC) jurisdictional questions.
CRS prompted policy makers with several key questions:
- Regulatory Framework.
- Should money service businesses and banks be required to acquire federal licenses or establish subsidiaries to engage in stablecoin-related activities?
- How should stablecoin issuers be regulated to ensure uniform requirements across different regulators?
- Regulatory Jurisdiction.
- Should stablecoin issuers be chartered or licensed at the federal or state level, or a combination of both?
- Are stablecoins securities or commodities, and which regulatory agency should oversee them?
- Master Accounts.
- Should nonbank financial institutions, including cryptocurrency firms, have access to master accounts at the Federal Reserve for wholesale payment systems?
- Deposit Insurance.
- Should stablecoins issued by banks be covered by deposit insurance and should nonbanks be eligible for deposit insurance?
- How should stablecoin holders be prioritized in the event of a failure?
- Consumer and Investor Protection.
- Should stablecoin issuers be subject to prudential regulations or adhere to disclosure, segregation, custody and conflict-of-interest rules?
- How can risks associated with stablecoins be mitigated through regulation?
- Reserves and Disclosure.
- Should there be requirements for the types of assets held as reserves, the ratio of assets to stablecoins and the capital held by issuers?
- Should issuers be obligated to disclose information about their reserves and undergo formal audits?
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