New Stablecoin Bill Could Define Regulatory Landscape

In anticipation of a congressional hearing Tuesday (Feb. 11) on regulating digital assets, Rep. Maxine Waters of California introduced a bill that would establish a comprehensive regulatory framework for payment stablecoins, digital assets pegged to a stable value, like the U.S. dollar.

The still-unnamed bill presented Monday (Feb. 10) seeks to address the potential risks and rewards posed by stablecoins.

“This draft bill fosters innovation while properly addressing and prioritizing concerns I have long held about safeguarding our nation’s consumers from scams that have plagued the crypto industry,” Waters said in a Monday press release.

The bill represents the culmination of three years’ worth of work to craft bipartisan stablecoins legislation and required “extensive collaboration and technical assistance from the Treasury Department and the Federal Reserve,” the release said.

Last week, House Financial Services Committee Chairman French Hill of Arkansas introduced a discussion draft for a bill that would establish a stablecoin framework.

At the heart of the bill from Waters is a requirement that all stablecoin issuers be either a registered payment stablecoin issuer, a licensed nonbank entity, or a subsidiary of an insured depository institution. Unregistered or unlicensed entities would face stiff penalties, including fines of up to $1 million per violation and imprisonment of up to five years.

The bill defines a payment stablecoin as a digital asset designed to be used as a means of payment or settlement, and which the issuer is obligated to convert, redeem or repurchase for a fixed amount of monetary value, or which represents that it will maintain a stable value relative to a fixed amount of monetary value.

Under the proposed legislation, payment stablecoin issuers would be subject to strict reserve requirements, mandating that they hold reserves on a one-to-one basis. These reserves must consist of U.S. coins and currency, funds held as insured demand deposits, short-term Treasury bills, or repurchase agreements backed by Treasury securities. The reserves cannot be rehypothecated or reused, except to meet redemption requests, and must be disclosed monthly.

The proposed rules would create a process for nonbank entities to apply to the Board of Governors of the Federal Reserve System to become licensed payment stablecoin issuers. Insured depository institutions would apply to their appropriate federal banking agency. The bill sets a timetable for these applications and includes factors that regulators must consider when evaluating these applications, including the applicant’s ability to comply with the requirements of the act and to maintain the required reserves.

The federal payment stablecoin regulators would have the authority to jointly issue regulations to administer the act, including establishing conditions to prevent evasions of the law. They would also supervise payment stablecoin issuers. The bill also provides for the treatment of insolvent payment stablecoin issuers and allows for the appointment of a receiver or liquidating agent in certain circumstances.

The bill includes provisions for interoperability standards and assessments to cover regulatory costs and addresses extraterritoriality. A two-year moratorium on endogenously collateralized stablecoins, which rely on the value of another digital asset created by the same originator, is also included in the proposed law. The legislation is intended to have extraterritorial effect, and it prohibits the offer or sale of stablecoins to U.S. persons without proper registration.

The proposed rules would not take effect until the regulations required under the act are issued and would become effective 120 days after they are issued. The federal payment stablecoin regulators would have to issue the regulations within 18 months of the law’s enactment.