President’s Working Group Unveils Stablecoin Report, Calls on Congress to ‘Act Promptly’ in Treating Cryptocurrency Platforms Like Banks
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The President’s Working Group on Financial Markets on Monday released a long-awaited report on “stablecoins,” calling on Congress to “act promptly” in establishing a “prudential framework” governing how they are used.
Noting “the transition to broader use of stablecoins as a means of payment could occur rapidly” in days ahead, regulators warned, “failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy.”
The report invited backlash from cryptocurrency proponents, particularly for expanding on its sweeping definition of what it called “stablecoin arrangements.” Such arrangements, the authors said in an earlier assessment, include entities “developing, offering, trading, administering or redeeming” coins, including “issuers, custodians, auditors, market makers, liquidity providers, managers, wallet providers, and governance structures.”
The definition effectively lumped in digital developers whose products involve the use of so-called stablecoins, which are pegged to the U.S. dollar or other fiat currencies, and thus do not change in value. The terminology would subject developers to many of the same anti-money laundering rules imposed on banks by the federal government.
Opining on the implications of the language, Cinneamhain Ventures partner Adam Cochran wrote on Twitter, “This dirty little subnote in the stablecoin paper is lumping in: -developers -market makers -managers -wallet providers -governance structures -and liquidity providers as ‘stablecoin arrangements,’ suggesting that all these proposed regulations should apply to them. This is basically suggesting that even decentralized entities have a requirement to [identify] users and need to be a chartered bank that is FDIC insured and that nearly all participants could be found liable for that.”
Members of Congress similarly took note. “With its stablecoin report, the PWG seems to try to force Congress to choose between handing over regulatory power to bureaucrats or risking the unchecked FSOC stamp out crypto innovation,” Congressional Blockchain Caucus Chairman Rep. Tom Emmer (R-MN) wrote on Twitter, referring to unelected regulators at with the Treasury Department’s Financial Stability Oversight Council. “On top of that, the PWG wants stablecoin issuers to register as banks.”
Sen. Cynthia Lummis (R-WY) struck a similar tone. “I agree with many of their recommendations, including the need for Congressional legislation and prudential risk management, proposing that only insured depository institutions may issue a stablecoin is misguided and wrong,” Lummis said in a statement. “We should all be able to agree that startups should have the same chance as Wall Street institutions. As the report clearly states, though, Congress will have the final say.”
The working group was chaired by Treasury Secretary Janet Yellen, who has been outspoken in expressing her skepticism of cryptocurrencies, along with Federal Reserve Chairman Jerome Powell. Securities and Exchange Commission Chairman Gary Gensler, also a member of the group, praised its findings in an afternoon statement.
“Stablecoins may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity,” Gensler said. “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.”
