At a U.S. Senate Banking Committee hearing on stablecoins last week, Sen. Pat Toomey (R-PA), the ranking member, outlined a set of principles that should serve as the framework for future legislation.
Among the principles, Toomey said stablecoin issuance should not be limited to insured depository institutions. Requiring all stablecoin issuers to become banks would stifle innovation, Toomey said. Also, the regulation of payments activities should create a level playing field.
The second principle is that stablecoin issuers would choose from at least three regulatory regimes based on their business models. They could operate under a bank charter, acquire a special-purpose banking charter designed for stablecoin providers, or register as a money transmitter under the existing state regime and as a money services business under FinCEN’s federal regime.
Third, all stablecoin issuers should have to adopt clear redemption policies, disclosure requirements regarding the assets backing the stablecoin and potentially meet liquidity and asset quality requirements.
“Stablecoins offer tremendous potential benefits, including greater payment speed, lower payment costs, expanded access to the payment system, and programmability,” Toomey said. “A regulatory framework should follow from legislation. The legislation should address consumer protection and financial system risks, but it should also be designed to promote innovation in the rapidly evolving global digital economy.”
Among the other principles, Toomey said commercial entities should be eligible to issue stablecoins, provided they choose one of these regimes; non-interest bearing stablecoins should not necessarily be regulated like securities; regulation should protect the privacy, security, and confidentiality of individuals utilizing stablecoins; and financial surveillance requirements under the Bank Secrecy Act should be modernized in light of emerging technologies like stablecoins.
“Regulation of stablecoins should be narrowly tailored and harmonized within the United States and across jurisdictions globally,” Toomey added. “In addition, regulation should seek to maintain the international competitiveness of the United States. Regulators should acknowledge that privately issued stablecoins would not undermine the international status of the U.S. Dollar but that well-managed stablecoins could actually support it. Finally, regulation should allow stablecoins to be interoperable with the current financial system.”