SEC will not regulate, Congress calls for action. On November 1, the US Presidential Working Group on Financial Markets (PWG) released its long-awaited report and policy recommendations on stablecoins. The focus of the document is on the prudent risks that stablecoins – or those that are intended to maintain stable value against a reference fiat currency – can pose to users and financial stability.

The main message from PWG is that the use of stablecoins is currently largely limited to facilitating transactions in digital assets, but that greater retail adoption can be achieved under certain conditions, so that Congress will soon have to enact a comprehensive federal security framework.

Below is a summary of what the report raised – and some not.

All the men and women of the President

The PWG consists of the heads of the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Reserve System, with the Treasury Secretary leading the group. The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) also contributed to the interagency report.

Given the significant concentration of federal financial regulators, the result of their joint efforts was expected to be a reliable account of the current government’s position on stablecoin regulation.

Shortly before the document was released, anonymous reports emerged claiming the team had approved a significant SEC decentralization plan for stablecoins. This further adds to the tension surrounding cross-agency reporting as such regulatory labeling would necessarily require observer reclassification for the underlying asset class.

The prospect of the SEC taking the lead in stablecoin regulation worries some players in the crypto space. Speaking to Cointelegraph prior to the report’s release, C. Neil Gray, partner at the Duane Morris law firm, said:

“Industry participants see the SEC’s attempt to score in this area, possibly as another example of the SEC’s handover in the crypto space, and fear the SEC will regulate it. Stablecoins through enforcement rather than rules, as some argue they do it does in others. ” Areas. ”

However, for compliant crypto players, either type is certainly better than missing it. Sujit Raman, a privacy and cybersecurity partner at Sidley law firm and former Assistant Attorney General for the US Department of Justice, says clarity about the boundaries of accountability for each regulatory issue is still welcome. Raman notes:

“In the absence of new laws, stablecoins are still subject to the simultaneous and possibly overlapping jurisdiction of several regulatory mechanisms at the federal and state levels. Therefore, any agreement between the relevant federal agencies about who will take the lead in regulating stablecoins is important. “

Inquire at the competent authority

During the development of the report, there was evidence that the SEC wasn’t the only U.S. regulator looking to expand its presence in the digital asset market.

Marc Powers – a law professor, former SEC attorney, and columnist for Cointelegraph Magazine – believes that although the SEC has been more active in enforcing and guiding digital assets over the past four years, the CFTC asserted jurisdiction over Bitcoin (BTC) . was considered a commodity.

In addition, the CFTC’s incumbent president Rostin Behnam stated last week that up to 60% of digital assets can be classified as commodities, which has led to the proposal that the panel become a leading cryptocurrency regulator in the United States.

Finally, contrary to expectations, the cross-agency report did not give preference to any of the regulatory authorities. The authors conclude that “stablecoins or certain parts of stablecoin agreements may be securities, commodities and / or derivatives,” citing the jurisdiction of the SEC or the CFTC.

The language is still very similar to what PWG used in the early stages of research into the stablecoin sector. First, a statement by the working group from December 2020 states: “Depending on their design and other factors, stablecoins can represent securities, commodities or derivatives that are subject to securities laws, federal assets and / or derivatives.”

Additionally, there is nothing in the language of the inter-agency report to suggest the SEC is “at the forefront” in overseeing the stablecoin sector.

Waiting for the congress

While the central message of the report is to encourage Congress to step in and pass relevant legislation as soon as possible, the authors of the document also explain how regulators should deal with the risks posed by stablecoins before lawmakers acted.

In addition to the SEC and the CFTC, which will continue to use their existing agencies to protect against the regulatory risks mentioned above, the report calls upon other relevant agencies – including the Department of Justice, the Financial Consumer Policy (CFPB) and the Financial Crimes Enforcement Agency (FinCEN) ). – To investigate how existing laws could be applied to stablecoins in areas such as consumer protection, payment and money transfer services.

In particular, the report also assigns the Financial Stability Oversight Council (FSOC), a group of US regulators formed after the 2008 financial crisis, to consider a number of stablecoins’ activities – such as settlement, clearing, and settlement – as “systemic” to designate important “, which will trigger additional supervision. Crypto-friendly Senator Pat Toomey recently warned against this scenario in a letter to Treasury Secretary Janet Yellen.

The classification of stablecoins as systemically important does not seem feasible, especially as stated by several regulators in response to the report. First, CFPB director Rohit Chopra pledged to work with other members of the Financial Stability Oversight Board to determine whether or not to initiate nomination processes for specific activities or companies, whether or not non-bank stablecoins are systemically important.

Wait a long time?

The section of the intergroup report on the assignment of regulatory responsibilities before (or in the absence of) Congressional action is particularly relevant due to the inability of lawmakers to act swiftly on the stablecoin issue. Gray commented on Cointelegraph:

“No significant action by Congress in this area is expected in the near term, so the SEC and other agencies are temporarily occupying the room.”

The powers that be, further confirming the view, adding, “Chances are that Congress will not operate with a comprehensive framework that covers all types of digital assets.”

Until then, it remains to be seen how much regulatory activity the report will trigger due to its non-binding nature.

Related: Crypto Lenders On Hot Seats: New Regulations Coming Soon?

Jackson Mueller, director of politics and government relations at digital asset firm Securrency, spoke to Cointelegraph shortly before the PWG report was released and said he expected it to resemble a number of reports from Cointelegraph, the Treasury Department of a few Years ago, the former president responded to Donald Trump’s executive order on the basic principles of regulation of the US financial system.

Mueller claims that many of his recommendations are “fairly vague or limited to encouraging regulators or Congress to continue their work on a particular issue”. Ultimately, it is unclear “how many of the proposed recommendations went beyond the pages of these reports”.

While some of the recommendations in the PWG report are also fairly general, at least one important implication – the acceleration of the FSOC identifying certain aspects of stablecoin operations as systemically important – could affect the field in very tangible ways.