Key takeaways:
- Chairman of the Securities and Exchange Commission Gary Gensler spoke before the Senate Banking Committee today, answering a variety of questions concerning the SEC’s position in crypto markets.
- In a much-anticipated report, the President’s Working Group on Financial Markets urged for bank-like regulatory control of Stablecoins.
- The report identifies regulatory loopholes that must be filled in order to mitigate risks and recommends a number of legislative changes.
- Three U.S. senators issued remarks in regards to the Biden administration’s government report on Stablecoins released on Monday.
Senators Sherrod Brown, Pat Toomey, and Cynthia Lummis all issued remarks in response to the study that clearly defined the parameters of the next discussion on Stablecoins. All three are members of the Senate Banking Committee, with Brown and Toomey serving as chair and ranking members, respectively.
The report made many proposals for new laws. Because this study has piqued Congress’s attention for a long time, the answers from senators from both parties will almost certainly set the tone for the discussion over any legislation that may follow from today’s recommendations. The need to limit Stablecoin supply to organisations that are insured depository institutions — basically, banks with FDIC protection — was the most important of those proposals.
“We must work to ensure that any new financial technologies are subject to all of the laws and regulations that protect investors, consumers, and markets, and that they compete on a level playing field with traditional financial institutions.”
Brown, a long-time colleague of President Joe Biden and a political ally of Treasury Secretary Janet Yellen stated.
The placing of new technologies such as Stablecoins within current legislation is critical to the framing of Brown’s remark. While today’s proposals included a need for new legislation, the scope of current power is widely contested.
“While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.”
With his comments, SEC Chairman Gary Gensler stated that authorities like the Securities and Exchange Commission and the Commodity Futures Trading Commission should be more involved in Stablecoins.
Among financial authorities, Gensler has been particularly active in classifying a growing number of crypto projects as securities under existing criteria. However, there has been no apparent increase in, say, SEC legal enforcement activities.
“As the Biden administration acknowledges in its report, it is the responsibility of Congress to clarify whether, and to what extent, federal agencies have jurisdiction over Stablecoins. While Congress works on thoughtful legislation, I hope the administration will resist the urge to stretch existing laws in an effort to expand its regulatory authority.”
Senator Toomey’s remark
Senator Lummis, like Senator Toomey, emphasised that the President’s Working Group needs legislation to bring its central request into law: “As the report clearly states, though, Congress will, and should, have the final say.”
The Treasury Department advocates for laws governing stablecoins
A regulatory council chaired by the United States Treasury Department called on Congress on Monday to oversee issuers of “Stablecoins,” such as banks and encouraged financial institutions to investigate whether the position of these rapidly developing digital assets in the country’s payments system presented a systemic danger.
As per the report, Stablecoins which include Tether, USD Coin, and Binance USD, has grown 500 per cent in the last year to a market worth of $127 billion,
“The rapid growth of Stablecoins increases the urgency of this work,” the report stated. “Failure to act risks growth of payment Stablecoins without adequate protection for users, the financial system, and the broader economy.”
However, Stablecoins now have a variety of regulations controlling disclosures, what assets are held in reserve to back the coins, and redemption rights, all of which might render them vulnerable to runs if users lose faith in the asset.
The report urges Congress to pass legislation requiring stablecoin issuers to be insured depository institutions in order to prevent a “run on the bank,” legislation requiring wallet providers to be eligible for federal oversight in order to address payments risk, and legislation requiring stablecoin issuers to comply with rules that limit affiliations with other commercial entities.
“The rapid growth of Stablecoins increases the urgency of this work. Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy,”
Stablecoins have become a prominent aspect of the crypto business and have been labelled as a potential systemic danger to the larger financial system because of their developing links to the traditional financial system.
Meanwhile, it calls on organisations, notably the Financial Stability Oversight Council, to address some of the dangers that Stablecoins pose to the financial system, such as identifying some Stablecoin transactions as “systemically important payment, clearing, and settlement activities.”
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