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Treasury Secretary Janet Yellen has urged the US government and regulators to move quickly and establish a regulatory framework for stablecoins. She acknowledged that there isn’t an adequate framework in place for the regulation of cryptocurrencies.
However, her comments indicated that there might be an inter-agency collaboration or a new agency that would look into the matter.
Policymakers Moving Fast
The President’s Working Group on Financial Markets met on Monday, underscoring the urgency with which policymakers are working to ensure that their rules can keep up with the rapid advancements in digital currencies.
The group’s point of discussion was the growth of stablecoins, discussing their potential uses and risks to users and the financial system. Stablecoins are cryptocurrencies that have their value pegged to fiat currencies such as the Dollar.
An Inadequate Framework
Janet Yellen commented on the existing framework, stating that they do not have an adequate framework in place at the moment,
“I think (for) cryptocurrencies we don’t really have an adequate framework to deal with the different issues that they pose from a regulatory perspective; There are issues around money laundering, Bank Secrecy Act, use of digital currencies for illicit payments, consumer protection and the like. And while several agencies arguably have some ability to address this through regulation, I frankly don’t think we have a framework in the United States that is quite up to the task of putting in place a regulatory framework that we need in the future. I think that’s a topic that’s well worth addressing.”
The concerns seem to have been brought into focus by the new chair of the securities and exchange commission, Gary Gelsner, who is extremely knowledgeable about cryptocurrencies and blockchain technology. It is also telling that President Biden has still not announced his pick for the Office of the Comptroller of the Currency.
Former Ripple advisor Michael Barr was the early leading candidate before being replaced by Mehra Baradaran, a Bitcoin skeptic. As of late March, there were six candidates with no decision made.
Whether there would be a cross-regulator task force remains to be seen. Or whether the agreement to coordinate between the SEC and the OCC has already taken place.
Cross-Regulator Task Forces Already Exist
When banks were given the go-ahead to hold stablecoin reserves, Brian Brooks, former Comptroller of the Currency, had to collaborate with the SEC because some stablecoins also qualified as securities. When the Chamber of Digital Commerce held a panel with Brooks and then SEC Chair Jay Clayton, they stated that cryptocurrencies and blockchain technology converge across several industries, where regulators may overlap.
When asked who takes the lead during coordination between the SEC and the OCC, Jay Clayton responded that it depended a lot on functionality.
“For stablecoins, it makes sense for the OCC to drive it. If it’s the tokenization of ETFs, it makes sense for the SEC. What we don’t like is when someone says, you know, the function is payments, so you really gotta look past the securities law stuff. I can’t do that. You know, I wouldn’t be doing my job. Don’t pretend that it’s a payment system when it’s actually a financing vehicle.”
When questioned on the fragmented nature of the US Regulatory System and whether it is a disadvantage, Brooks stated that it might be fragmented in the sense that there are a lot more regulators than other countries, but they are extremely well coordinated.
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