stabiliziNGstableCoiNs : CoNGressurGedtoaCtaNdproMptlYeNaCt
Securities law Section Chairs : EricFeld – WiandGuerraKing , P . A . & JosefRosen – GrayRobinson , PA
stablecoinsareaclass ofcryptocurrencies thatareintended tobebackedbya reserveassetlikethe u . s . dollarorgold .
On November 1 , 2021 , the President ’ s Working Group on Financial Markets ( PWG ), the Federal Deposit Insurance Corporation ( FDIC ), and the Office of the Comptroller of the Currency ( OCC ) ( collectively , the Agencies ), issued a report on stablecoins . The report analyzes the prudential risks that payment stablecoins pose and provides recommendations to address these risks .
Stablecoins are a class of cryptocurrencies that are intended to be backed by a reserve asset like the U . S . dollar or gold . Payment stablecoins are those designed to maintain a stable value , relative to a fiat currency , that can potentially be widely used to make payments . Tether ( USDT ) is an example of one such stablecoin in that each token is pegged one-to-one to the U . S . dollar in terms of value . In other words , one USDT is always valued by Tether at one USD .
According to the report , stablecoins and stablecoin-related activities present a variety of risks . Such risks include , but are by no means limited to , payment system risks and systemic risks . Many of the risks payment stablecoins pose mirror those traditional payment systems face , namely operational , settlement , and liquidity risks . The operational risks can lead to the reduction or deterioration of
services due to human error and deficiencies in information . The settlement risks can increase uncertainty and create credit and liquidity pressures for stablecoin arrangement participants that do not clearly define when settlement funds and transactions are final . Meanwhile , liquidity risks can cause temporary shortages in the amount of stablecoins available to make payments if , for example , the business hours of the fiat and stablecoin payment systems differ . Furthermore , systemic risks are a concern because the failure or distress of an essential stablecoin participant , such as a custodial wallet provider , can potentially disturb the economy .
As such , the Agencies have called upon Congress to act and promptly enact legislation subjecting payment stablecoins , and their arrangements , to a federal prudential framework . Specifically , the Agencies recommend that Congress establish legislation limiting stablecoin issuance and related activities to insured depository institutions , thus prohibiting their issuance by other entities . They also recommend that Congress subject custodial wallet providers to federal oversight . This measure would thereby restrict service providers from lending stablecoins , and require proper risk-management , liquidity , and capital requirements compliance . Among other recommendations , the Agencies also encourage the enactment of legislation delegating the proper agencies with authority to examine and enforce stablecoinrelated activities .
Absent Congressional action , the Agencies urge the Financial Stability Oversight Council ( Council ) to address the risks outlined in the report . In the meantime , the Agencies are willing to act to address risks falling within their respective jurisdictions . For example , stablecoins and stablecoin arrangements may be securities , commodities , or derivatives , and therefore subject to the jurisdiction of other agencies , including the Securities and Exchange Commission ( SEC ) and Commodity Futures Trading Commission ( CFTC ). Both the SEC and CFTC reportedly have broad enforcement , rulemaking , and oversight authority over persons and transactions falling within their jurisdictions . n
Author : Cindy Innocent – Guerra King
5 8 j a n - f e b 2 0 2 2 | H C b a L a W Y e R