WASHINGTON, Nov. 1 (Reuters) – A Treasury Department-led regulator on Monday called on Congress to regulate issuers of “stablecoins” like banks, and urged tax authorities to assess the role of these fast-growing digital assets in the payments of the country system posed a systemic risk.
The highly anticipated report by the President’s Working Group on Financial Markets is likely to bolster efforts by policymakers to guardrail stablecoins, a type of digital asset tied to traditional currencies that could pose a threat to the entire financial system Mistake.
Stablecoins, which include Tether, USD Coin, and Binance USD, are up 500% in the past 12 months, according to the report, to reach a market cap of $ 127 billion.
“The rapid growth of stablecoins increases the urgency of this work,” the report said. “Failure to act risks the growth of payment stablecoins without adequate protection for users, the financial system and the economy in general.”
While stablecoins are primarily used to facilitate trading in other cryptocurrencies, they could be widely used for payments by households and businesses, the report said.
Currently, however, stablecoins have a wide range of policies that govern disclosure of what assets are kept in reserve to cover the coins and redemption rights, which could make them all prone to runs if users lose confidence in the asset.
“Runs could spread contagiously from one stablecoin to another, or to other types of financial institutions believed to have a similar risk profile,” warned.
The main recommendation of the report is that Congress should “urgently” pass a law that would regulate the issuers of stablecoins in a similar way to insured depositaries, subject them to strict supervision by the banking supervisory authorities and at the same time provide for some form of state protection in the event of a crisis.
The President’s Working Group (PWG) has been researching stablecoins in consultation with the financial industry, academics and stakeholders for the past few months after Treasury Secretary Janet Yellen said policy makers need to act quickly to establish a system of regulation for the asset class.
“We look forward to reviewing the paper and providing guidance to the working group,” said a White House official.
The PWG traditionally comprises the Treasury, Federal Reserve, Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), but the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency are also on the stablecoin -Job.
The report said Congress should also call for stricter oversight over stablecoin wallet providers who hold digital currency on behalf of customers.
This conclusion is likely to disappoint those in favor of increased oversight, as it can take years for Congress to pass such laws.
“I am very concerned that they are concluding that laws are absolutely necessary to address the risks of stablecoins. The SEC and FDIC currently have the regulatory authority to address many of the problematic aspects of these cryptocurrencies, ”said Todd Phillips, director of financial regulation for the Center for American Progress, a liberal think tank.
Democratic Senator Sherrod Brown, chairman of the Senate Banking Committee, praised the report in a statement and said he plans to work with Yellen on a way forward.
But Senator Pat Toomey, the senior Republican on that body, stressed in a statement that Congress shouldn’t stifle digital currencies and asked whether federal regulators should be in charge of stablecoins. The Senate is currently split evenly between Republicans and Democrats.
If Congress fails to act, the Financial Stability Oversight Council, a body of US regulators created after the 2007-2009 financial crisis, could classify some stablecoin activities – particularly payments, clearing, and settlement – as systemic risk that makes them more stringent At sight.
Monday’s report also confirmed that both the SEC and the CFTC have jurisdiction to oversee stablecoin activity as securities and derivatives, respectively.
SEC chairman Gary Gensler said in a statement that these agencies plan to provide “full protection” of relevant laws for stablecoins while Congress ponders the legislation.
Reporting by Pete Schroeder and Michelle Price; Editing by Andrea Ricci, Paul Simao and Sandra Maler
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