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Industry players are looking for additional clarity on stablecoin regulation following two Congressional hearings. Legislators must be careful when it comes to regulating stablecoins, or the industry could disappear entirely, warned Flavia Naves, Circle’s general counsel.
“Trying to place existing traditional bank designs on stablecoin issuers could result in a simple industry ban,” Naves said Thursday during a virtual panel discussion with Merkle Science.
“I’m sure this is not the desired intention of the regulators, but it could go in that direction.”
Naves was referring to a recent proposal by the President’s Financial Markets Working Group, which called for Congress to pass legislation requiring stablecoin issuers to be insured by banks. The rule could hinder innovation, Naves said, and legislators need to make sure they have a complete understanding of the technology.
Other panellists agreed that more clarity is needed, but most are skeptical that there will be any regulatory action in the near future.
“There is little hope that the law will be passed in the next 12 months,” said Jamie Wetzel, deputy general counsel for PNC Bank.
“Unfortunately, the regulators in this industry are judging football today according to a set of rules from the 1930s and 40s or even older, so we have to take pity on the regulators and work with them.”
Both the House and Senate held stablecoin hearings this month, and Wetzel said no committee has come close to agreeing on how to respond to new technologies. There appears to be a party split between Republicans and Democrats when it comes to digital assets, and the likelihood of a government split in the next election will only slow progress even further, he added.
The Navs comments come as representatives from a variety of industries are urging the US Securities and Exchange Commission (SEC) and other regulators to take tougher action against stablecoins. Seven independent US research and advocacy organizations, including the American Financial Reform Education Foundation and the Revolving Door Project, released a letter Thursday to the SEC, Treasury Secretary Janet Yellen and the Commodity Futures Trading Commission (CFTC).
“Despite the explosive growth of the stablecoin market, stablecoins are not used to any significant extent to make ordinary commercial payments, but are instead used primarily for speculation, tax evasion and evasion of critical security measures for the banking system and national security.” the letter says.
SEC Chairman Gary Gensler called stablecoins “poker chips” due to their speculative nature. He hinted that he is interested in advancing oversight of digital assets, although his latest policy agenda does not mention technology.
“I don’t think technology has been around for long outside of social and public policy,” Gensler said in September.
When regulation does happen, Circle looks forward to working with policymakers to make sure all stakeholders are represented, Naves said.
“We want to make sure we have time to understand and pass the proper legislation,” she said.
“We need to ensure that we continue to drive innovation and deliver better services to our customers, while assessing the appropriate risks to the industry.”
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