Sen. Pat Toomey on April 6, 2022, rolled out draft legislation setting out a three-path regulatory framework for stablecoins. Toomey, a Pennsylvania Republican and the ranking member of the Senate Banking Committee, is among the most vocal of Republican lawmakers calling for a light regulatory touch on stablecoins, digital assets whose value is pegged to the U.S. dollar or other stable asset.
Toomey has been working for months to garner visibility for the bill, entitled the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act (Stablecoin TRUST) Act of 2022.
The measure is partly a response to a November 2021 stablecoin report by the President’s Working Group on Financial Markets (PWG) that recommended stablecoin issuers be insured depository institutions to protect users and prevent runs. Under Toomey’s draft bill, banks would be permitted to issue stablecoins. But the measure also sets out two other regulatory paths: allowing issuers to be registered under state-level money transmitter regimes, and creating a new federal license under the Office of the Comptroller of the Currency (OCC) tailored to stablecoin issuers.
“While today stablecoins facilitate trading with cryptocurrencies, tomorrow stablecoins could be widely used in the physical economy,” Toomey said in a statement. “They have the potential, among other things, to speed up payments and automate transactions.”
He said his regulatory framework “will allow this crypto-innovation to continue flourishing while protecting consumers and minimizing potential risks from stablecoins to the financial system.”
Under Toomey’s bill, issuers would be subject to a series of disclosures to the Treasury Department on reserve assets backing the stablecoin and redemption policies, and would be required to undergo quarterly attestations by a registered public accounting firm, the results of which would need to be publicly disclosed.
The bill, in an effort to keep stablecoins outside the enforcement purview of the SEC, amends the securities laws to specifically spell out that stablecoins do not qualify as securities.
Cryptocurrencies more broadly are subject to increasing calls for clearer regulation, and stablecoins have been subject to particularly intense debate on that front.
Whether that regulation comes from congressional mandate or financial regulators’ existing authorities is also central to that debate. The Center for American Progress (CAP), has suggested the SEC could use its existing authority to regulate money market funds (MMFs) under the Investment Company Act of 1940 to regulate stablecoins. (See Center for American Progress: Regulators Already Have ‘Significant Authority’ on Crypto in the March 7, 2022, edition of Accounting & Compliance Alert.)
Toomey’s legislation would be one of several competing bills setting out stablecoin regulation. In February, Rep. Josh Gottheimer, a New Jersey Democrat, released a draft bill – the Stablecoin Innovation and Protection Act of 2022 – creating an OCC-led stablecoin framework. Gottheimer’s bill would set out a definition of a qualified stablecoin as a cryptocurrency or other privately-issued digital financial instrument that is ”redeemable, on demand, on a one-to-one basis for United States dollars” and issued by one of two entities: an insured depository institution or a non-bank issuer that meets several criteria, including maintaining at least 100 percent reserve assets in dollars or certain other assets. (See Rep. Gottheimer Proposes Draft Stablecoin Framework in the February 17, 2022, edition of ACA.)
And Sen. Cynthia Lummis, a Wyoming Republican, is planning to release a comprehensive crypto framework alongside Sen. Kirsten Gillibrand, a New York Democrat, that will address stablecoins alongside other digital assets. (See Sen. Lummis: SEC Will Have ‘Huge Role’ Under Crypto Legislation in the March 28, 2022, edition of ACA.)
This article originally appeared in the April 12, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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