The absence of comprehensive and consistent supervision and examination of stablecoin issuers and arrangements means that matters routinely addressed in the supervision and examination processes of regulated financial institutions – such as capital and liquidity, operations risk, third party risk management, data security, data privacy and anti-money laundering and sanctions compliance – may be left unaddressed, leaving end-users exposed to risks.
The November 1st report on stablecoins issued by the PWG, FDIC, and OCC recognizes many stablecoin-related risks, and constitutes an important step toward identifying and addressing emerging stablecoin-related risks. However, stablecoin-related risks go beyond those identified in the report.
TCH encouraged the House Financial Services Committee (Committee) to view stablecoin-related risks not merely as a concern for markets and users, but as a challenge for administrative agencies and governmental actors, and a concern for the continued safe and sound operation of the US. Financial system. TCH also encouraged the Committee to not view state money transmitter licensing regimes as an adequate regulatory and supervisory framework for stablecoin arrangements, or as an alternative to a federal prudential framework, because there are significant gaps in such regimes, particularly when applied to the unique issues of stablecoin arrangements. For example, state money transmitter laws often lack supervision at the holding company level, and many state money transmitter laws do not impose third-party and vendor risk management requirements. Additionally, some state money transmitter laws fail to impose portfolio restrictions on the use of customer funds and may not contain capital or liquidity requirements. Moreover, state money transmitter laws do not provide access to lender of last resort facilities to preserve financial stability in the event that the assets underlying a stablecoin arrangement become devalued in times of stress. TCH expressed its appreciation for the important work the Committee is doing to examine the opportunities and risks presented by stablecoins and stablecoin arrangements, and hopes the Committee takes the points made in the statement into consideration as Congress determines what an appropriate regulatory framework for stablecoins should look like.
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