According to a draft discussion released on Monday, Republicans on the House Financial Services Committee took another attempt at drafting stablecoin legislation. The proposed legislation reflected the US lawmakers’ desire to allow comprehensive regulation.
Additionally, sources suggest that the House Republicans fed up with the Securities and Exchange Commission’s stance on crypto proposed new draft stablecoin legislation which intends to take jurisdiction away from the agency over payment stablecoins.
Notably, the released draft revealed the reason behind the legislation as negotiations continue over a comprehensive framework for stablecoins. The lawmakers desired to design a framework for stablecoins amid the SEC’s investigation into BUSD, a shared stablecoin between Paxos and Binance.
According to the current draft, the bill intends to grant authority over stablecoins to federal and state bank and credit union regulators. Contrary to the previous bipartisan talks, the bill would no longer touch algorithmic stablecoins or mandate a study of a central bank digital currency (CBDC).
Instead, the bill narrows down the focus on stablecoins used for payments and is intended to be a companion piece to legislation that would govern digital asset markets in the country.
However, the recent move aiming to limit the SEC’s role doesn’t come as a surprise. In recent times, both industry participants and lawmakers particularly Republicans have often criticized SEC Chair Gary Gensler’s approach towards digital assets.
French Hill (R-Arkansas) is serving as the chair of the new digital assets and financial technology-focused subcommittee. He plays a key role in stablecoin negotiations and briefing media about the topic, he said:
I’ve been disappointed in the SEC approach on digital assets, particularly stablecoins, but other aspects too, of not bringing clarity.
Apart from shifting the authority of stablecoins from the SEC to federal and state bank and credit union regulators, the bill also has a provision for nonbank stablecoin issuers. It puts these issuers to regulatory examinations in which every stablecoin is backed by legal tender or short-term Treasury bonds and includes a monthly reporting requirement with a certified public accounting firm.
While the states have the authority to approve stablecoin issuances using their own standards, the bill sets a floor for state regulators for evaluating projects. The bill also gives the Federal Reserve the power to halt projects, even after they have gained approval by a state given the stablecoin does not meet those baseline criteria. According to a New York Department of Financial Services (NYDFS) staff state regulations put in place by them provided a reference point for the new draft.
Additionally, the bill states that the issuance of a stablecoin without regulatory approval could result in criminal, as well as civil, penalties, and stablecoin issuers would be subject to anti-money laundering and know-your-customer requirements, similar to a bank.
Sources reveal that stablecoin issuers who are waiting on full approval from regulators could be granted a preliminary green light to start issuing stablecoins for up to a year while being evaluated. As per the terms of the bill stablecoins would have to be backed at least one-to-one with legal tender or short-term Treasury bills.
Notably, the Republican leaders have characterized the bill as a conversation starter, and that it has been shared with Democratic staff of the House Financial Services Committee as well as the Biden administration. Hence, it will be interesting to see what happens with the legislation considering the evident divide between both political parties.
