TL;DR:
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House Republicans propose a new draft of stablecoin legislation that would shift jurisdiction over payment of stablecoins from the SEC to federal and state bank and credit union regulators.
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The move to limit the SEC’s role in the regulation of stablecoins raises concerns about the potential for political interference in the crypto industry and a lack of clarity.
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Any move to regulate the crypto industry must be done carefully and with a bipartisan agreement to ensure a fair and stable market for all stakeholders.
House Republicans are proposing a new draft of stablecoin legislation that would shift jurisdiction over payment of stablecoins from the Securities and Exchange Commission (SEC) to federal and state bank and credit union regulators. This move comes after congressional Republicans and industry executives have criticized SEC Chair Gary Gensler’s approach towards digital assets, particularly stablecoins. Gensler has asserted that stablecoins are a security investment that would fall under the SEC’s jurisdiction, while Republicans believe that he has not brought clarity to the issue.
As negotiations continue over a comprehensive framework for stablecoins, the draft legislation would narrowly focus on stablecoins used for payments, unlike previous bipartisan talks, which aimed to touch algorithmic stablecoins or mandate a study of a central bank digital currency. The bill is intended to be a companion piece to legislation that would govern digital asset markets in the U.S.
Gary Gensler had a tough time during the hearing
The draft legislation also subjects nonbank stablecoin issuers to regulatory examinations, and every stablecoin would have to be backed by legal tender or short-term Treasury bonds. Additionally, the bill includes a monthly reporting requirement with a certified public accounting firm. States could approve stablecoin issuances using their own standards, but the bill sets a floor for state regulators for evaluating projects.
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. Stablecoin issuers 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.
The move to limit the SEC’s role in the regulation of stablecoins raises concerns. While Republicans believe that the bill will bring clarity to the issue, the potential for political interference in the crypto industry is a worrying development. If politics is brought into crypto, it could open the door for corruption and abuse of power.
In addition, Gensler’s assertion of jurisdiction over stablecoins as a security investment may have put him at odds with other Biden administration officials. The move to shift authority over stablecoins to federal and state bank and credit union regulators may create confusion and a lack of clarity, which could further hinder the development of the crypto industry.
Overall, any digital asset-related bill will need bipartisan support to become law, given the Republican majority in the U.S. House of Representatives and the Democratic majority in the Senate. While Republicans have seen a shift in leverage towards them after the midterm elections, any move to regulate the crypto industry must be done carefully and with a bipartisan agreement to ensure a fair and stable market for all stakeholders.
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