BPI and ABA Urge Regulators to Better Understand Risks from Digital Assets

In response to a Treasury request for comment on the use of digital assets in illicit finance activities (see previous coverage), the Bank Policy Institute ("BPI") and the American Bankers Association ("ABA") urged regulators to better understand the differences between risks associated with nonbank-issued cryptocurrencies and stablecoins and traditional banking products and services.

Crypto Assets and Stablecoin

BPI and ABA asserted that the only way to mitigate risks presented by crypto assets is to implement a regulatory and supervisory framework at the national level that addresses the unique risks posed by each crypto asset type. BPI and ABA stated that regulators should consider:

• the risks presented by nonbank-issued crypto assets and how best to deliver disclosures on (i) risk management, (ii) corporate measures to safeguard against fraud and (iii) Bank Secrecy Act/Anti-Money Laundering requirements; and
• a stablecoin regulatory framework that would effectively (i) prioritize the safety of the stablecoin issuer and consumer, (ii) maintain U.S. financial stability and (iii) prevent against financial crimes.

Because of the current lack of sufficient controls and governance around nonbank stablecoin issuers and non-federally regulated banks, BPI and ABA argued that they should not be granted access to central bank reserves.

Cross-Border Risk Mitigation

BPI and ABA urged regulators to (i) lead in cross-border cooperation to better understand illicit finance risks of digital assets and (ii) study how supervision and regulation standards are implemented for digital assets worldwide.

CBDCs

BPI and ABA also warned of the “serious” risks a U.S. central bank digital currency ("CBDC") could pose to the U.S. economy and argued that a CBDC would likely (i) undermine the commercial banking system in the United States by attracting deposits away from banks and (ii) limit the availability of credit to the economy in a highly procyclical way. BPI and ABA asserted that the supposed benefits of a CBDC, particularly that cross-border payments systems would become more efficient, would not be realized. The associations said that cross-border payment delays are related to Anti-Money Laundering / Countering the Financing of Terrorism ("AML-CFT") regulations which a CBDC would not fix.