PWG releases stablecoin report and recommendations
On November 1, the U.S. Treasury Department announced that the President’s Working Group on Financial Markets (PWG), with the FDIC and the OCC (collectively, “agencies”), released a report on stablecoins, which are a kind of digital asset intended to maintain a stable value relative to the U.S. dollar. The report noted that stablecoins may be more widely used in the future as a means of payment, which Secretary of the Treasury Janet L. Yellen said could increase “risks to users and the broader system.” Additionally, Secretary Yellen considers current stablecoin oversight to be “inconsistent and fragmented.” Among other things, the report discussed gaps in regulatory authority to reduce these risks. The report recommended that Congress promptly enact legislation to address the risks of payment stablecoins and ensure that payment stablecoins and payment stablecoin arrangements are subject to consistent and comprehensive federal oversight and to “increase transparency into key aspects of stablecoin arrangements and to ensure that stablecoins function in both normal times and in stressed market conditions.” According to the announcement, “[s]uch legislation would complement existing authorities with respect to market integrity, investor protection, and illicit finance, and would address key concerns,” including: (i) risks to stablecoin users and stablecoin runs; (ii) payment system risk; and (iii) systemic risk and concentration of economic power.
While Congress examines legislation on stablecoin, the report recommended that the Financial Stability Oversight Council consider steps for addressing risks, such as “the designation of certain activities conducted within stablecoin arrangements as, or as likely to become, systemically important payment, clearing, and settlement (PCS) activities,” which would be subject to an examination and enforcement framework. The report also recommended that stablecoin issuers “comply with activities restrictions that limit affiliation with commercial entities,” to maintain the separation of banking and commerce. Additionally, the report discussed that, in addition to existing AML/CFT regulations, stablecoin arrangements and activities may implicate the jurisdiction of the SEC and/or CFTC. Therefore, to prevent misuse of stablecoins and other digital assets, the announcement noted that Treasury “will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue more resources to support supervision of domestic AML/CFT regulations.”
The same day, Treasury released a fact sheet on the PWG report, which clarified, among other things, the purpose of the report, risks posed by stablecoins, and the agencies’ recommendations. In a statement released by OCC acting Comptroller of the Currency Michael J. Hsu, he emphasized his support for the recommendations highlighted in the report pointing out that, “[s]tablecoins need federal prudential supervision to grow and evolve safely.” In a statement released by CFPB Director Rohit Chopra, he noted that though the CFPB was not a member of the PWG, the Bureau “will be taking several steps related to this market,” such as the CFPB’s orders to six large U.S. technology companies seeking information and data on their payment system business practices (covered by InfoBytes here), among other things.