- Significant financial industry associations are expressing reservations about a portion of the forthcoming stablecoin legislation.
- The associations’ concerns revolve around allowing state financial regulators to approve stablecoin issuance, creating potential regulatory gaps and risks.
In an unfolding drama over cryptocurrency regulation in the United States, a segment of the impending stablecoin legislation is causing disquiet among influential industry associations representing the majority of the nation’s financial institutions. The contentious point in question centers around allowing state-level regulatory approval for stablecoin issuance.
The Tug-of-War Over Stablecoin Legislation
The comprehensive regulatory framework for stablecoins, slated for debate and vote by the House Financial Services Committee on Thursday, has received critical letters from the American Bankers Association (ABA) and its counterparts representing banks and credit unions. These bodies are apprehensive about a portion of the bill, which, as currently drafted, permits state financial regulators to approve stablecoin issuance.
The ABA, alongside the Consumer Bankers Association (CBA) and Credit Union National Association (CUNA), view this as a risk to consumer protection and financial stability. Similarly, in a letter organized by the ABA, 49 state banking associations and bankers from Puerto Rico echoed these concerns.
“To ensure effective consumer protection and financial stability, it is critical that the stablecoin ecosystem, like the banking ecosystem, is subject to strong regulatory oversight,” the associations advised. They seek the same level of Federal oversight for state-licensed stablecoin issuers as currently applied to state-chartered banks.
The industry groups pointed out the increased risk of “arbitrage” and “systemic risk” with the state regulatory approval approach in the bill. They also expressed the view that stablecoin issuers should receive the same federal oversight as banks and credit unions.
Highlighting that stablecoins have “clear monetary policy implications,” the associations urged for “federal oversight that ensures financial stability and consumer protection.” They also suggested additional regulations, such as examinations by regulators and third-party audits of reserves exceeding current asset reporting requirements. This would ensure that stablecoin issuers hold the assets they claim to back the fiat-denominated tokens they issue.
Lastly, the associations called for a ban or restrictions on commercial companies owning or controlling a payment stablecoin issuer, similar to existing separations between commercial and banking companies in the U.S.
The upcoming debate over the stablecoin bill in the House committee has been deferred to Thursday. The pushback from industry could potentially influence Democrats and Republicans alike, creating potential roadblocks for the legislation’s progress.
