New Legislation Introduced to Regulate Stablecoin Issuers
In a significant move to clarify the legal landscape for stablecoin issuers, Senator Bill Hagerty (R-TN) has unveiled a draft of new legislation aimed at establishing a comprehensive regulatory framework.
As a member of the Senate Banking Committee, Hagerty’s goal is to eliminate ambiguity surrounding stablecoin regulations, thereby unlocking the full potential of these digital assets to enhance payment systems and bolster demand for US Treasury securities.
“Stablecoins can improve transaction efficiency and payment systems while concurrently fostering new interest in US Treasuries as we look to address our growing deficit,” stated Hagerty.
He emphasized that the current lack of clear regulatory guidelines has “hindered” the growth and potential of stablecoins in the US, stating that his proposed legislation is essential for maximizing the technology’s benefits for American consumers.
Key Provisions of the Legislation
The draft legislation builds upon the existing Clarity for Payment Stablecoins Act, initially introduced by House Financial Services Committee Chairman Patrick McHenry. Here are some of the notable provisions:
Exemption for Smaller Issuers
Stablecoin issuers with total assets below $10 billion will be exempt from federal oversight and can continue to operate under state regulations. Larger issuers are still allowed to request waivers to maintain their state regulatory frameworks.
Reserve Requirements
The legislation mandates that stablecoin issuers maintain reserves that are fully backed on a one-to-one basis by high-quality assets, such as US currency or Treasury bills. Transparency is enforced through monthly disclosures of these reserves, ensuring consumers know their investments are secure.
Transaction Interoperability
To promote seamless transactions, the bill requires the establishment of interoperability standards for stablecoin operations across different financial systems and international networks.
Regulatory Oversight
Issuers classified as “permitted payment stablecoin issuers” must comply with regulations and have established procedures for the timely redemption of stablecoins. The Federal Reserve will regulate depository institution issuers, while the Office of the Comptroller of the Currency (OCC) will oversee nonbank issuers.
Commitment to Consumer Protection
The proposed legislation also seeks to enhance consumer protection while fostering innovation. Key aspects include:
Strengthened Regulatory Pathways
It emphasizes collaboration between state and federal regulators, allowing state-regulated issuers to function under specific federal guidelines. This promotes a supportive environment for stablecoin innovation.
Segregation of Customer Assets
Stablecoin issuers must keep customer assets separate from their own, preventing misuse and protecting consumer funds in the event of issuer insolvency.
Restrictions on Rehypothecation
Issuers are barred from rehypothecating customer reserves, except under strict conditions for liquidity management, ensuring that funds remain securely available for redemption.
Custodial Requirements
Entities managing custodial services for stablecoins must adhere to robust regulations that prioritize the security of consumer assets, safeguarding them from creditors in case of financial issues.
This legislative initiative is a pivotal step towards integrating stablecoins into the broader financial ecosystem, balancing the advancement of digital assets with the need for stringent consumer protections.