On November 1, 2021, the President's Working Group on Financial Markets (PWG)1—along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)—published the Report on Stablecoins (Report),2 providing a wish list for future legislation regulating stablecoins used as a means of payment and recommending interim measures until legislation can be adopted. The Report could have an immediate impact on the way both federal and state regulators assess risk management issues, anti-money laundering (AML) and sanctions controls, reserve management, and the financial soundness and stability of stablecoin issuers even without legislative intervention.3
Summary
Stablecoins are blockchain-based cryptocurrencies pegged to an underlying asset (usually, but not always, a fiat currency like the US dollar or the Japanese yen). The Report asserts that today stablecoins are primarily used in the United States to facilitate the trading, lending and borrowing of other digital assets, but proponents believe that stablecoins could become widely used by households and businesses as a means of payment and cross-border remittances without exchange rate risks.4 While the Report acknowledges that "[i]f well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options," it also notes a number of risks attendant with that eventuality.5 These risks include market integrity, investor protection, and illicit finance concerns, as well as a range of prudential concerns related to the increased use of stablecoins as a means of payment (i.e., payment stablecoins). In order to address the prudential risks related to payment stablecoins, the PWG, along with the FDIC and OCC, recommends that Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal prudential framework on a consistent and comprehensive basis.
Footnotes
1. On March 18, 1988, Executive Order 12631 established the PWG, which is chaired by the Secretary of the Treasury, or his or her designee, and includes the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission (SEC), and the Chairman of the Commodity Futures Trading Commission (CFTC) or their designees. See President's Working Group on Financial Markets, "President's Working Group on Financial Markets Statement on Key Regulatory and Supervisory Issues Relevant to Certain Stablecoins," US Department of the Treasury (December 23, 2020), available at https://home.treasury.gov/system/files/136/PWG-Stablecoin-Statement-12-23-2020-CLEAN.pdf at 1 fn. 1.
2. President's Working Group on Financial Markets, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, "Report on Stablecoins," US Department of the Treasury (November 2021), available at https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.
3. Other governmental or quasi-governmental bodies that have recently issued reports or letters on stablecoin governance include the OCC independently (see Office of the Comptroller of the Currency, "OCC Chief Counsel's Interpretation on National Bank and Federal Savings Association Authority to Use Independent Node Verification Networks and Stablecoins for Payment Activities" (January 4, 2021), Interpretive Letter #1174, available at https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2a.pdf); the Bank for International Settlements (see Douglas Arner, Raphael Auer, and Jon Frost, "Stablecoins: Risks, Potential and Regulation," Bank for International Settlements Working Paper No. 905 (November 2020), available at https://www.bis.org/publ/work905.pdf); the G7 Working Group on Stablecoins (see G7 Working Group on Stablecoins, "Investigating the Impact of Global Stablecoins" (October 2019), available at https://www.bis.org/cpmi/publ/d187.pdf); and the Financial Stability Board (see Financial Stability Board, "Regulation, Supervision and Oversight of 'Global Stablecoin' Arrangements: Final Report and High-Level Recommendations" (October 13, 2020), available at https://www.fsb.org/wp-content/uploads/P131020- 3.pdf).
4. The Report notes that in the 12 months prior to October 2021, the use of stablecoins exploded, increasing nearly 500% to a $127 billion market capitalization. Report at 7.
5. Id. at 1.
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