Republicans propose shifting stablecoin regulation away from SEC to prevent excessive power concentration

The U.S. House Financial Services Committee introduced a draft stablecoin bill in mid-month, and a related hearing is underway in the Congress. However, Republican members of the House seem to be tired of the Securities and Exchange Commission (SEC)'s stance on cryptocurrency issues and have proposed new stablecoin legislation that would strip the SEC of its jurisdiction over payment stablecoins.

For more information on the draft stablecoin bill, please see: U.S. House Introduces Draft Stablecoin Bill, Proposes Pause on Use of Cryptocurrency-Backed Stablecoins, Urges CBDC Research

Disappointment with the SEC's Approach

According to a report by The Block, the stablecoin legislation draft resulting from bipartisan negotiations differs from prior versions by no longer addressing algorithmic stablecoins or requiring research on central bank digital currencies. Instead, the focus narrows to stablecoins used for payments, aiming to serve as complementary legislation for managing the U.S. digital asset market.

Arkansas Republican French Hill, chair of a new subcommittee focusing on digital assets and financial technology, played a pivotal role in stablecoin negotiations. In an interview with The Block, he expressed:

I am disappointed in the Securities and Exchange Commission's approach to digital assets, particularly stablecoins, though they have not brought clarity in other aspects either.

Look at how SEC Chairman Gary Gensler was evasive during hearings: Highlights from Gary Gensler's hearing: Refusal to answer Ethereum attributes, March banking crisis blamed on cryptocurrency

Shifting Stablecoin Regulation to Federal and State Levels

In addition to transferring stablecoin oversight from the SEC to federal and state banking and credit union regulators, the bill mandates non-bank stablecoin issuers undergo regulatory scrutiny. Each stablecoin must be backed by fiat currency or short-term government bonds, with monthly reports from registered accounting firms required.

States can approve stablecoin issuances based on their own standards, but a baseline is set. If a stablecoin falls short of the foundational criteria, even with state approval, the Federal Reserve can demand cessation.

Per the bill's terms, stablecoins must be backed at a minimum on a 1:1 basis with fiat currency or short-term Treasury securities. In the event of insolvency, holders of stablecoins for payment will receive priority compensation.

Given the Republican majority in the U.S. House of Representatives and the Democratic majority in the Senate, bipartisan support is necessary for any digital asset-related legislation. Additionally, President Biden's signature is required for such bills to become law, indicating substantial effort is needed for stablecoin legislation to progress.