CRS Examines U.S. Regulatory Framework for Stablecoins
Commentary by Steven Lofchie
The Congressional Research Service ("CRS") examined the existing regulatory framework for stablecoins and reviewed options for legislators and regulators. (See Part 1 and Part 2).
CRS described stablecoin issuers as resembling banks and money market mutual funds, given that stablecoin issuers generally promise they will return customer funds at a fixed value on demand while being able to invest those funds in a range of financial assets. CRS stated that some stablecoin issuers are chartered as trust companies and others are regulated as money services businesses, both of which are less heavily regulated than banks. CRS points out that many stablecoin issuers are not subject to any federal regulatory scheme, leaving investors potentially unprotected.
CRS reviewed several legislative and regulatory options for stablecoins, including:
- legislation limiting stablecoin issuances to insured depository institutions (e.g., the Stablecoin Classification and Regulation Act of 2020);
- disclosure requirements on the composition of stablecoin reserves (e.g., the Stablecoin Transparency Act);
- granting the SEC authority to regulate stablecoins (e.g., the Managed Stablecoins are Securities Act of 2019); and
- designating financial market utilities and nonbank financial companies engaged in stablecoin activities as "systemically important" and subjecting designated institutions to heightened regulatory standards.
Commentary
There are two basic types of asset-backed stablecoins: (i) fiat-currency backed; and (ii) securities-backed. The first seems like a straightforward banking product, and the second a money market fund. Banking regulators and the SEC should be able to produce a set of regulations workable for each type.
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