Outgoing Sen. Pat Toomey, R-PA, introduced a bill Wednesday that would create the first regulatory framework for stablecoins in the U.S. and “guide Congress toward a path for sensible regulation of cryptocurrencies.”
The Stablecoin TRUST Act — the acronym stands for Transparency of Reserves and Uniform Safe Transactions —would require all stablecoins, a type of digital currency designed to be pegged to a fiat money, to be fully backed by liquid assets and would authorize several types of regulated entities to issue stablecoins.
Stablecoin issuers would be subject to standardized disclosure requirements and attestations by registered accounting firms.
The framework would clarify that stablecoins don’t offer interest, are not securities, and would be regulated by the Office of the Comptroller of the Currency (OCC).
Toomey introduced a discussion draft of the measure in April that would allow the OCC to give charters to stablecoin issuers. Toomey’s reintroduction of the bill Wednesday came a week after he delivered his farewell address on the Senate floor and came with the hope that the framework “lays the groundwork for my colleagues to pass legislation next year safeguarding customer funds without inhibiting innovation.”
Lawmakers have scrambled over how to legislate the regulation of stablecoins since the President’s Working Group on Financial Markets issued a report in November 2021, urging Congress to give the digital assets a level of oversight similar to banks.
Within a week, Senate Banking Committee Chair Sherrod Brown, D-OH, sought feedback from issuers themselves.
Members of the House Financial Services Committee engaged in a five-hour debate in February on how best to regulate stablecoins, with no consensus.
And Treasury Secretary Janet Yellen called for more robust regulation of stablecoins during a Senate Banking Committee hearing in May.
The ranking member of that committee, Toomey, touted his framework Wednesday as a model that “won’t undermine competition by favoring entrenched incumbents — for example, by limiting payment stablecoin issuance to insured depository institutions.”
He also explained his nod to the OCC.
“This bill will also ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity,” Toomey said.
The Toomey measure comes, too, less than a week after the Basel Committee on Banking Supervision (BCBS) unveiled guidelines — including stablecoin-focused rules — for banks playing in the digital-asset space. That same day, the Financial Stability Oversight Council (FSOC) issued an annual report calling for crypto regulation.
The BCBS outlines standards for two groups of crypto assets. Group 1 are tokenized traditional assets and stablecoins. Group 2, meanwhile, are riskier products that are unbacked and don’t fit Group 1 standards.
Group 1 assets are subject to capital requirements based on underlying exposures as set out in the existing Basel framework. For Group 2 assets, the finalized guidelines limit bank exposure to 1% of their Tier 1 capital.
Following the collapse of crypto exchange FTX, crypto regulation has been a hot topic. Unlike some proposals, Toomey’s “would provide the regulatory flexibility for both state- and federally chartered entities to engage in this activity,” he said.
“The Stablecoin TRUST Act recognizes the wide range of payments innovation occurring at the state level and avoids the regulatory conflict of interest that could emerge if the Federal Reserve, which may be authorized to issue a central bank digital currency, were to have unchecked power over stablecoins,” Toomey’s announcement said.
Despite a downturn in the crypto sphere, banks are still interested in playing in the stablecoin space. A spokesperson for Northern Trust said this month that the bank expects 5% to 10% of its assets under custody to be digital by 2030. The FTX fallout, the spokesperson said, likely pushed the mainstreaming of digital assets “back a little bit,” but did not “obliterate” it.