Overview of House Hearing Highlights: Republican Lawmakers Oppose Federal Regulation of Stablecoins
Original Author: Mary Liu
Original source: BitpushNews
Original Author: Mary LiuOriginal source: BitpushNewsOn Tuesday morning, US Eastern Time, the Financial Services Committee of the US House of Representatives held a meeting entitled
"Digital Assets and the Future of Finance: A Report of the Presidential Working Group on Financial Markets (PWG) on Stablecoins"
At the hearing, Nellie Liang, Undersecretary for Domestic Financial Affairs of the U.S. Department of the Treasury, attended the meeting as a witness.
The hearing, which was devoid of specific legislation, aimed to better understand the risks that may be seen in the development of stablecoins, and which regulatory framework can best address them. Lawmakers discussed whether regulation of stablecoins and digital assets should be enforced at the state or federal level, but were unable to reach consensus. The Bitui editorial team takes you back to review the key points from the hearing.
Let’s first understand the background of this meeting. PWG’s stablecoin report made three key recommendations:
To address operational risk, all stablecoin issuers should be Insured Depository Institutions (IDIs)
To Address Payment System Risks, Federal Regulators Should Oversee Custody Wallet Providers
Issuers and wallet providers should have limited linkages with commercial entities to address systemic risk, and regulators can enforce interoperability standards.
[Rep. Maxine Waters: There are many stablecoins that are not backed by all reserve assets]
In her opening remarks, Rep. Maxine Waters (CA-43) discussed the potential risks of stablecoins to the economy and the community, while also highlighting the opportunities it presents to the financial system. “Investigations have shown that many of these so-called stablecoins are not actually backed by full reserve assets. Moreover, due to speculative trading and insufficient investor protection, stablecoins may even threaten our financial stability,” Waters said.
[Congressman Warren Davidson: Tether is a time bomb]
U.S. Congressman Warren Davidson talked about the financial risks posed by stablecoins. Davidson said: "Tether is a time bomb. It has no transparency or disclosure. They admit that they have commercial paper, but they do not disclose what it is. This is what I think A framework of mandatory disclosure does provide a place for investor protection." USDC, the second-largest stablecoin by market capitalization, is a “highly regulated asset,” Davidson said. He also criticized the PWG report, calling it a "big bank protection concept".
[Republican lawmakers oppose federal regulation]
Republican Representatives Patrick McHenry and Wagner emphasized that existing experience of state regulators in overseeing stablecoins should be considered and possibly leveraged. Patrick McHenry hinted that US regulation of stablecoins with a “single regulatory agency at the federal level” may fail. Rep. Jake Auchinclos (D-Mass.) said he doesn’t understand why stablecoins must be subject to federal insurance regulation when they are “constrained by the crypto economy.”
Nellie Liang responded that there are separate regulations for issuers and custodial wallet providers, but the lack of overall oversight of the payment system creates risks. She also pointed out that laws vary from state to state, adding complexity that hinders innovation.
[Nellie Liang: Technology companies should not be allowed to issue cryptocurrencies as payment tools]
Nellie Liang, undersecretary for domestic financial affairs at the U.S. Department of the Treasury, said at the hearing that stablecoins could have far-reaching effects on the financial system and the economy, but they also pose threats: “Stablecoins also raise policy issues, including links to illicit finance, user protection and systemic risks. To mitigate these risks, while supporting the potential benefits of innovation, Treasury believes that the regulation of stablecoins should be clear and consistent.” Rep. Maxine Waters asked about Facebook's Libra (later Diem) project and expressed concern about the amount of sensitive personal data these companies would have access to. Nellie Liang stated that technology companies should not be allowed to issue cryptocurrencies as payment tools, saying: "The US President's Financial Markets Working Group (PWG) report believes that a more consistent and less fragmented regulatory framework is the first choice".
[Nellie Liang: Stablecoins can form the cornerstone of payment systems]
Nellie Liang said that if the stable currency is backed by high-quality assets and the risk is low, it can be used as the cornerstone of the payment system. Rep. Patrick McHenry pointed out that the Presidential Working Group on Financial Markets (PWG) report did not mention any state regulatory framework, and Liang said: "The main reason is that the US state regulatory system is fragmented and there is no unified oversight."
[Nellie Liang: Stablecoin is a product similar to a bank, and it is also a product similar to investment]
“[Stablecoins] are a bank-like product and an investment-like product, and that’s why we think there’s a regulatory loophole,” Nellie Liang said at the hearing. Asked by Rep. Bill Huizenga (R-Mich.) why the Presidential Working Group on Financial Markets (PWG) report did not include any analysis of whether stablecoins might be a securities law or a policy issue under the securities laws, Liang said the group was focused on bringing stablecoins The idea of Bitcoin as a payment instrument and trying to "identify regulatory gaps" with that particular use case. Huizenga stated that it is unclear how stablecoins are subject to securities laws: “If we don’t have a clear picture, why don’t you guys do this kind of analysis”? Liang responded that she would defer to the SEC's advice.
[Nellie Liang: The Federal Reserve-backed digital dollar can coexist with private stablecoins]
Nellie Liang said a Fed-backed digital dollar could co-exist with private stablecoins. Rep. French Hill asked about the possibility of stablecoin issuers getting a federal money transmitter license, and Liang said, “It’s a possibility that’s definitely worth exploring.”
[Rep. Tom Emmer: A bank-like regulatory framework is not suitable for stablecoins]
Rep. Tom Emmer said that while stablecoins represent only 5% of the total value of the digital asset industry, they account for more than 75% of cryptocurrency transactions, which is why they cannot be ignored. He also criticized the report of the President’s Task Force on Financial Markets, noting that it asserted that the risks of stablecoins are broad without providing a definition of them. Emmer said that a bank-like regulatory framework is not suitable for stablecoins and would inadvertently hinder potential future financial products that are very different from stablecoins. “Banks should not be the only ones in the ecosystem that have the potential to issue financial products that the Presidential Task Force reports are simply mixed together and linked together as stablecoins,” Emmer said.
[Rep. Ann Wagner: Must ensure that any federal regulatory framework provides clarity]
Rep. Ann Wagner said at the stablecoin hearing that it is necessary to ensure that "any federal regulatory framework provides clarity and ensures that regulation is appropriate for financial activities rather than simply overlaying traditional banking regulation on top of stablecoins."
[Rep. Jim A. Himes: Stablecoins should not be regulated the same as high-risk Dogecoins]
Rep. Jim A. Himes (D-Conn.) said the question isn’t whether stablecoins should be allowed, but how to regulate them in a way that doesn’t stifle innovation. “There is a fundamental difference between a stablecoin that is fully backed by a USD/USD reserve and Dogecoin, which means that stablecoins need to be regulated differently than other high-risk cryptocurrencies,” he said.
