Biden working group urges federal agencies to use their authority for addressing stablecoin risk

The United States President’s Working Group on Financial Markets (PWG) has finally released a report on stablecoins with recommendations that could challenge existing business models or firms such as Tether, the issuer of the USDT coin.

US Treasury believes stablecoin risks could increase

The US government published the long-awaited report on November 1, suggesting that stablecoin issuers in the country should be subject to federal oversight, similar to that of banks.

The US Treasury report, from the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, stated that Congress should ensure that payment stablecoins are subject to “appropriate federal prudential oversight. 

Stablecoin issues such as Tether should be held to the same standards as insured depository institutions, including state and federally chartered banks, said the report. This could help protect customers’ deposits and limit any potential negative systemic impacts in event of failures. 

Stablecoin companies would see a restrictive guideline on the types of collateral they could use to back their coins. In addition, they would need to comply with measures that go with being a bank, including compliance, insurance and audits. 

While the Securities & Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) had broad enforcement and oversight authority to address cryptocurrency transactions and companies, the report suggested that stablecoin risks could likely increase in the future. As a result, stablecoins may sometimes fall “outside of the regulatory perimeter” of the two agencies.

The PWG highlighted that this legislation is urgently needed in order to address the prudential risks posed by stablecoins used as a payment gateway. The group urged federal agencies to use their authority to address risks in the cryptocurrency industry if and when Congress decides to act.

If Congress fails to act, the working group recommended the Financial Stability Oversight Council to take action to establish additional stablecoin regulatory standards.

In the meantime, the working group advised regulators to use existing authority to cover any perceived gaps in the stablecoin industry. These regulators include the Treasury, the Federal Reserve, SEC, and the CFTC.