As expected, the President's Working Group on Financial Markets (PWG) has released its report on stablecoins. According to the report, which is available here and below, if stablecoins are properly regulated, they could emerge as a more efficient and "inclusive" payment option. Simultaneously, stablecoins and stablecoin-related activities “present a variety of risks.”
The FDIC and the Comptroller of the Currency collaborated with the PWG to create the report.
These risks, according to the PWG Stablecoin report, include market integrity and investor protection against fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, as well as a lack of trading or price transparency.
Furthermore, stablecoins may raise illicit finance concerns and risks to financial integrity, such as anti-money laundering (AML) and counter-terrorism financing (CFT), as well as prudential concerns such as a run on stablecoin assets when questions about redemptions arise.
According to the PWG, digital asset regulations are the responsibility of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and these two agencies "have broad enforcement, rulemaking, and oversight authorities that may address certain of these concerns." According to the report, stablecoins or parts of stablecoin arrangements may be securities, commodities, or derivatives depending on the structure.
The PWG requests that Congress pass legislation requiring "stablecoin issuers to be insured depository institutions, subject to appropriate supervision and regulation at both the depository institution and the holding company level."
According to the proposed legislation, "custodial wallet providers should be subject to appropriate federal oversight."
Congress should also give a stablecoin issuer's federal supervisor the authority to require any entity that performs activities critical to the operation of the stablecoin arrangement to meet appropriate risk-management standards.
In advance of any new regulations, the PWG states;
“[regulatory agencies are] committed to taking action to address risks falling within each agency’s jurisdiction, including efforts to ensure that stablecoins and related activity comply with existing legal obligations, as well as continued coordination and collaboration on issues of common interest.”
Treasury Secretary Janet L. Yellen issued a statement on the report:
“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system. Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue. While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets.”
While the legislative process can be slow, you can expect the CFTC and SEC to make independent statements while coordinating any activity. In the absence of legislation from Congress, the group may take additional action as outlined in the document.
The stablecoin market is currently valued at around $127 billion, with Tether (USDT) and Circle's dollar-based cryptocurrency USDC leading the way.
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