Banking Committee Ranking Member Proposes Stablecoin Regulatory Framework

U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) distributed a draft of a bill to establish a new regulatory framework for "payment stablecoins."

The "Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022," or the "Stablecoin TRUST Act of 2022," would establish a licensing regime for issuers of "payment stablecoins" defined as any "convertible virtual currency" designed for broad use as a medium of exchange that, among other things, (i) is convertible to fiat currency directly by the issuer; (ii) is "issued by a centralized entity"; (iii) is recorded on a public blockchain; and (iv) does not pay interest to the holder. The legislation does not address non-payment stablecoins (e.g., stablecoins backed by commodities, virtual currencies or algorithms).

The proposed legislation would require that payment stablecoin issuers choose from one of three regulatory regimes - i.e., such issuers can either be: (i) an insured depository institution with a traditional bank charter; (ii) a state-based money transmitter (or an entity with a similar license under state law); or (iii) an entity in receipt of a new federal license to be issued by the Office of the Comptroller of the Currency ("OCC") created specifically for payment stablecoin issuers. (Payment stablecoin issuers that receive the new OCC license will be subject to, among other things, the OCC promulgating requirements concerning (i) capital and liquidity; (ii) governance and risk-management; and (iii) reserve assets.)

The proposed legislation would subject all payment stablecoin issuers to standardized requirements including (i) monthly public disclosure of reserve assets backing the payment stablecoin; (ii) adoption and public disclosure of policies for redemption of payment stablecoins; (iii) quarterly attestations by registered public accountants; and (iv) attestation that "the assets backing the payment stablecoin do not materially diverge from those disclosed." Such disclosures will be required to be filed with the Secretary of the Treasury.

The proposed legislation exempts payment stablecoins from the definition of "security" under the U.S. securities laws - including the Securities Act of 1933 and the Securities Exchange Act of 1934. The discussion draft clarifies that payment stablecoins are not securities and payment stablecoin issuers are not investment companies or investment advisers.