December 14, 2021

Toomey Outlines Stablecoin Principles to Guide Future Legislation

“Legislation should promote innovation in the rapidly evolving global digital economy”

Washington, D.C. – At today’s U.S. Senate Banking Committee hearing on stablecoins, Ranking Member Pat Toomey (R-Pa.) released a set of principles to lay the framework for forthcoming legislation.

“Stablecoins offer tremendous potential benefits, including greater payment speed, lower payment costs, expanded access to the payment system, and programmability,” said Ranking Member Toomey. “A regulatory framework should follow from legislation. The legislation should address consumer protection and financial system risks, but it should also be designed to promote innovation in the rapidly evolving global digital economy.”

“Regulation of stablecoins should be narrowly tailored and harmonized within the United States and across jurisdictions globally,” he continued. “In addition, regulation should seek to maintain the international competitiveness of the United States. Regulators should acknowledge that privately issued stablecoins would not undermine the international status of the U.S. Dollar, but that well-managed stablecoins could actually support it. Finally, regulation should allow stablecoins to be interoperable with the current financial system.”

Ranking Member Toomey laid out the following principles, which will influence the development of his forthcoming legislative framework for stablecoins.

·        Stablecoin issuance should not be limited to insured depository institutions.

o   First, stablecoin issuers have different business models than traditional banks.

o   Second, requiring all stablecoin issuers to become banks would stifle innovation.

o   Third, the regulation of payments activities should create a level playing field.

·        Stablecoin issuers would choose from at least three regulatory regimes based on their business models:

o   Operate under a conventional bank charter;

o   Acquire a special-purpose banking charter designed for stablecoin providers in accordance with new legislation; or

o   Register as a money transmitter under the existing state regime and as a money services business under FinCEN’s federal regime.

·        All stablecoin issuers should have to adopt clear redemption policies, disclosure requirements regarding the assets backing the stablecoin, and potentially meet liquidity and asset quality requirements.

·        Commercial entities should be eligible to issue stablecoins, provided they choose one of these regimes.

·        Non-interest bearing stablecoins should not necessarily be regulated like securities.

·        Regulation should protect the privacy, security, and confidentiality of individuals utilizing stablecoins, including allowing customers to opt out of sharing any information with third parties.

·        Financial surveillance requirements under the Bank Secrecy Act should be modernized, including for existing financial institutions, in light of emerging technologies like stablecoins.

Last month, the President’s Working Group on Financial Markets (PWG) released a report acknowledging that it is the responsibility of Congress to clarify whether, and to what extent, federal agencies have jurisdiction over stablecoins. Shortly after the report was released, Ranking Member Toomey encouraged the administration to resist the urge to stretch existing laws in an effort to expand its regulatory authority as Congress works on thoughtful legislation.

“Digital assets have the potential to be as revolutionary as the internet,” said Senator Toomey. “It’s important lawmakers and regulators alike work to continue America’s longstanding tradition of fostering technological innovation—not stifling it.”