A group of US regulators said legislation is “urgently needed” on dollar-backed stablecoins central to the $2tn cryptocurrencies market, arguing that operators of the digital tokens should essentially be treated as banks.
In a report, the President’s Working Group on Financial Markets, comprising the secretary of the Treasury and the heads of all the key US financial regulators, said stablecoin issuers should become “insured depository institutions”, on a par with banks that offer saving accounts for customers.
The proposal mirrors the Stable Act, a legislative proposal presented to the US Congress last December that would require stablecoin operators to obtain full banking licences.
Such a move would bring a drastic increase in supervision for issuers of stablecoins, which have so far worked on the fringes of the financial system, subjecting the $130bn industry to strict regulation in return for access to emergency liquidity from regulators in times of stress. The deposits of customers at insured financial institutions are also backstopped by the US government up to a certain dollar amount.
“The rapid growth of stablecoins increases the urgency of this work,” said the report. “Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy.”
Other proposals include increasing federal oversight of wallet providers — groups that offer products that allow users to hold their crypto tokens — and requiring stablecoin issuers to limit their affiliation with commercial entities.
A senior administration official said the group was prepared to take direct action if Congress did not act urgently. This could include seeking a Financial Stability Oversight Council designation of certain stablecoin activities, which would allow the appropriate agency to establish risk management standards related to them.
At present, stablecoins are primarily used for buying and selling more volatile cryptocurrencies such as bitcoin, although some operators are keen to increase uptake as a tool for fast, cheap global transfers.
The President’s Working Group has previously described stablecoins as a potential threat to financial stability and even to national security. Various regulators around the world have expressed concern about their potential illicit use, their weak oversight and instances of poor transparency on tokens that are designed to be backed one-for-one with hard currency assets, chiefly dollars.
A senior administration official said the group rejected suggestions that stablecoins should be treated differently to banks based on the use of distributed ledger technology. Cryptocurrency exchange Coinbase, which jointly runs the $33bn stablecoin USD Coin with payments company Circle, suggested a new regulator for cryptocurrencies last month.
Some crypto groups are keen to operate within the bounds of traditional financial regulation but others are adept at skirting these rules by basing businesses overseas.
Regulators around the world have increasingly sought to control stablecoins as the number of coins in circulation has soared. In the UK, the Bank of England warned in June that stablecoins must face ““difficult questions”.
Other bodies are pursuing alternative approaches to stablecoins, leading the Financial Stability Board to raise concerns about regulatory arbitrage. A report from international regulators at the start of October suggested regulating stablecoins in line with payment systems and clearing houses.
