On Thursday, the United States Digital Assets Financial Technology Inclusion Committee held a hearing to discuss the stablecoin policy. The United States House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion is a subcommittee of the House Committee on Financial Services.
In opening the hearing, Congressman French Hill, Vice-Chairman of the House Financial Services Committee and Chairman of the subcommittee for digital assets said it is the committee’s aim to put through legislation supporting stablecoins as a recognized payment method.
We want payment stablecoins to be used as a payment mechanism, which they’re really not today. The only way we can do that is by bypassing the appropriate regulatory framework.
Referring to the anti-crypto sentiment at the governmental level, Congressman Hill clarified that committee members have the authority to reverse the trend of U.S. crypto flight and “submit the U.S. as the leading place for safe payments innovation.”
Taking ahead from the previous stablecoin hearing that took place in September, both parties brought their revised proposals addressing key points with a view to finding alignment on approving appropriate stablecoin regulation.
Reportedly, some of the key points highlighted during the hearing were the speculative nature of stablecoins, structural fragilities making them susceptible to runs, the roles of state versus federal regulators, the outcome of non-bank companies issuing stablecoins, how disclosures and attestations would operate, the role of the Fed, and safeguarding against threats to economic stability.
In addressing these concerns, witness testimonies were heard from individuals from diverse backgrounds like members of private firms, regulators, etc. Some of the names in the list included Fennie Wang, the founder of Humanity Cash, Matt Homer, Managing Member, The Department of XYZ, and former Executive Deputy Superintendent of Research and Innovation at the New York Department of Financial Services (NYDFS), among others.
Following this, the question and answer session took place wherein attendees asked their questions to committee members regarding the concerns raised.
In an answer to a question, Congressman Lynch stated that if stablecoin regulation was given to individual states to decide, they would be encouraged to ratify lax regulation to attract stablecoin issuers to their jurisdiction.
Hence, this would trigger decreased regulatory leniency among competing states. However, in his statements ahead, it was found that Lynch did not know the difference between cryptocurrencies and stablecoins in relevance to his comment about stablecoins and cryptocurrencies.
Moving ahead, regarding the issue of stablecoins and them being considered as securities, Congressman Bryan Steil mentioned the recent SEC Wells Notice served against Paxos. He highlighted that in the case, the securities regulator alleged the company had issued an unregistered security referring to the BUSD stablecoin.
Then Steil asked Mr. Homer for his opinion on the matter, to which he replied the Howey Test was incorrectly applied in that case. He suggested that it’s difficult to understand how a stablecoin user has an expectation of profit.
Further, referring to the role of the Fed in stablecoin regulation, Congresswoman Maxine Waters suggested that top-down legislation, with the federal level at the top, would ensure better consumer protections. Mrs. Hand agreed that the role of federal agencies at the top is key for consumer protection. She stated that the Fed could operate stablecoin oversight the same way as it governs chartered banks.
There has to be a role for the Fed to review applications and reject them if they don’t meet certain requirements.
Stablecoins have been a topic of talk among regulators for a while. The US entities have often highlighted the need for clarity regarding the use and status of stablecoins. The two primary regulators – SEC and CFTC have often been in strife claiming contrary theories for it.
Similarly, while some agencies feel the stablecoins could prove harmful to financial stability, several American states are looking forward to issuing their own stablecoins. However, it is not just the US that is battling about stablecoins, entities across the globe are in a similar position.
A few days back, Agustin Carstens, general manager at the Bank for International Settlements (BIS), said that the events of 2022 have cast “serious doubts on the ability of stablecoins to act as money.” Nonetheless, it will be interesting to see how the US manages to shape its stablecoin regulation amid all the frictions it has to face.