On November 1, 2021, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) (together, the “Agencies”), released a long-awaited Report on Stablecoins (“Report”). As discussed further below, the Report recommends comprehensive federal legislation, to include a requirement that stablecoin issuers be insured depository institutions (IDIs), and enforcement based on existing regulatory authority.
As detailed in the Report, stablecoins are a form of virtual asset whose value is pegged to the value of one or more other assets, the so-called “reserve assets.” The reserve assets often take the form of fiat currency, but can also include commodities or even other cryptocurrencies. The Report summarizes risks presented by stablecoins and stablecoin-related activity, including:
Although not the focus of the Report, the PWG and the Agencies also pointed out that stablecoins pose illicit finance concerns and risks to financial integrity, including concerns related to compliance with AML, CFT, and proliferation requirements. These risks have been a focus of other parts of the federal government, including FinCEN, OFAC, and the U.S. Department of the Treasury.
The Report highlights significant gaps in the prudential authority oversight of stablecoins used for payment purposes, with enforcement by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) limited to their respective jurisdictions. Within the jurisdictions of the SEC and the CFTC, the Report recommends that stablecoin activity be required to comply with federal securities law and the Commodity Exchange Act and related regulations. The Report makes several additional recommendations for legislation and regulation:
The PWG and the Agencies recommend that Congress act promptly to ensure that stablecoins and stablecoin arrangements are subject to a federal prudential framework. While any significant change in the regulation of the stablecoin industry would require federal legislation, the Agencies emphasize their commitment to working within their respective jurisdictions, along with the SEC and the CFTC, to regulate stablecoins. The Report signals to the cryptocurrency market and industry participants that increasing scrutiny may be on the horizon.