US Senator Proposes Framework for Stablecoin Regulation | Practical Law

US Senator Proposes Framework for Stablecoin Regulation | Practical Law

US Senator Patrick Toomey (R-PA), the ranking member of the US Senate Banking Committee, introduced a bill to create a regulatory framework for stablecoin issuers in the US.

US Senator Proposes Framework for Stablecoin Regulation

Practical Law Legal Update w-035-4444 (Approx. 5 pages)

US Senator Proposes Framework for Stablecoin Regulation

by Practical Law Finance
Published on 05 May 2022 • USA (National/Federal)
US Senator Patrick Toomey (R-PA), the ranking member of the US Senate Banking Committee, introduced a bill to create a regulatory framework for stablecoin issuers in the US.
On April 6, 2022, US Senator Patrick Toomey of Pennsylvania, the ranking member of the US Senate Banking Committee, introduced the Stablecoin TRUST Act, which would create a regulatory framework for "payment stablecoin" issuers in the US. A section-by-section summary was also released.
The key components of the bill would:
  • Authorize the following three options for the issuance of payment stablecoins:
    • a new federal license. The Office of the Comptroller of the Currency (OCC) would create a license specifically for stablecoin issuers, which would be designated as "national limited payment stablecoin issuers";
    • state-based money transmitter or similar license under state law; and
    • insured depository institutions. The bill makes clear that insured depository institutions may issue stablecoins.
  • Subject all payment stablecoin issuers, including those operating as state money transmitters and those receiving a new federal license, to standardized requirements, including:
    • disclosures regarding the reserve assets backing the stablecoin;
    • redemption policies; and
    • routine attestations by registered public accounting firms.
  • Distinguish stablecoins from securities by indicating that, at a minimum, stablecoins that do not offer interest are not securities.
  • Apply privacy protections to transactions involving stablecoins and other virtual currency (VC). The summary indicates that the notion that the Bank Secrecy Act (BSA), 31 USC 5311, reporting requirements should be applied to new technologies like VCs would not be included in the legislation.
The OCC would be responsible for implementing the bill's tailored regulatory framework. In addition to requirements applicable to all payment stablecoin issuers, those with an OCC license would be subject to additional requirements:
  • Capital.
  • Liquidity.
  • Governance and risk management.
Payment stablecoin issuers granted an OCC license would be granted Federal Reserve master accounts and services.
Advocates say the legislation is needed to:
  • Facilitate crypto innovation.
  • Protect consumers.
  • Minimize risks to the financial system.
The bill defines payment stablecoins as VC that:
  • Is designed to maintain stable value relative to fiat currency.
  • The user may convert directly to fiat currency.
  • Is designed to be used widely as a medium of exchange.
  • Is issued by a centralized entity.
  • Does not inherently pay interest to the holder.
  • Is recorded on a public distributed ledger.
For more information on the regulation of stablecoins, see Legal Updates: President's Working Group on Financial Markets Issues Report Supporting Federal Regulation of Stablecoins and Urging Congressional Action and US House of Representatives Committee on Financial Services Holds Hearing on Stablecoin Regulation.
For more information on cryptocurrency and VC regulation, see Crypto Toolkit and Cryptocurrency and Virtual Currency Regulatory Tracker.