Proposed Stablecoin Bill Would Give States Right to Regulate Crypto

Cryptocurrency’s go-ahead landscape is reaching a critical regulatory inflection point.

And it may be stablecoins, the backbone of the cryptocurrency economy, that help chart a clear path forward.

This, as Republican lawmakers on the House Financial Services Committee unveiled their version of a new draft stablecoin bill Monday (April 24), following a contentious debate April 19 over an older proposal.

The GOP document makes several changes, including giving state regulators more power to charter stablecoin issuers, something which New York Department of Financial Services (NYDFS) Superintendent Adrianne A. Harris had been pushing for, as well as more generally narrows the bill’s focus, including excluding algorithmic stablecoins.

Under the original bill, stablecoin issuers, which include both banks and nonbanks, needed to register with the Federal Reserve even if they had received state approval. The latest iteration still allows for the Fed to take ultimate enforcement action against issuers if individual states fail to do so upon its recommendation.

Importantly, the Republicans’ bill includes a proposed confirmation that stablecoins are not securities and therefore should not be regulated by the Securities and Exchange Commission (SEC).

GOP lawmakers have previously sparred with SEC Chairman Gary Gensler over his enforcement-as-policy approach to the crypto sector and frequent claims that the majority of tokens are securities.

The SEC earlier this year sent a Wells notice to stablecoin issuer Paxos, alleging that its Binance-branded BUSD stablecoin was an unregistered security.

“The SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable,” a group of Republican lawmakers wrote to Gensler.

“It’s the law; it’s not a choice,” Gensler has repeatedly said about the need for crypto firms to register with his agency.

The GOP’s new stablecoin bill is scheduled to be debated Thursday (April 27) as part of a congressional hearing held by the Subcommittee on Digital Assets, Financial Technology and Inclusion titled, “The Future of Digital Assets: Identifying the Regulatory Gaps in Digital Asset Market Structure.”

Proving Crypto Has Value Beyond Speculation

In recent weeks, questions about the status and regulation of digital assets and the sector’s market structure have become prominent around the globe.

“Regulatory clarity is really instrumental in creating the appropriate guardrails so that [the industry] can get the right innovations in place around payments so that they can flourish,” Gavin Michael, CEO at crypto company Bakkt, told PYMNTS April 17.

U.S. policy is already playing catch-up to Europe. EU lawmakers voted 517-38 Friday (April 20) in favor of a crypto licensing framework, Markets in Crypto-Assets (MiCA), becoming one of the first jurisdictions in the world to introduce a comprehensive set of rules surrounding crypto assets and their use.

“This puts the EU at the forefront of the token economy,” said Stefan Berger, lead MEP for the MiCA regulation, adding that the legal framework, “brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.”

See also: Bridging the Cryptocurrency Divide

MiCA offers a defined path to regulatory approval for crypto firms, and the framework gives stablecoins specific classifications depending on the reserves they are backed with.

The EU’s new policy, which will come into effect over the next two years, draws many of its rules and requirements from traditional finance, including capital requirements and transparency disclosures.

MiCA requires what it calls “significant” stablecoins, or those with 10 million users a year or more on average, to be supervised by the European Banking Authority. Those stablecoin issuers will also be expected to maintain capital of at least 3% of reserves. Infringements of MiCA can cost up to 15% of annual revenue.

Many industry leaders have come out in support of the landmark legislation.

“We’re ready to make adjustments to our business over the next 12-18 months to be in a position of full compliance,” Changpeng Zhao, CEO of the world’s largest crypto exchange, Binance, tweeted.

Binance has long faced regulatory investigations and trouble in the U.S. over concerns regarding the legality of its operations.

U.S. crypto exchange Coinbase also tweeted that MiCA’s passage represented a “pivotal moment for crypto regulation.”

Coinbase recently escalated its domestic fight with the SEC, filing a legal challenge Monday to make the SEC “propose and adopt rules to govern the regulation” of digital assets.

Reached by PYMNTS, the SEC declined to comment.

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