August 17, 2022

Volume XII, Number 229

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House Financial Services Committee Focuses on PWG Stablecoin Report

On February 8, the House Financial Services Committee held a hearing titled, “Digital Assets and the Future of Finance: The President’s Working Group on Financial Markets” to consider legislative recommendations from the President’s Working Group (PWG) report on stablecoins (we previously discussed the report in an earlier Consumer Finance & FinTech Blog post here).   

Nellie Liang, the Treasury Department’s Undersecretary for Domestic Finance, presented the report’s findings and emphasized the need for lawmakers to introduce a legal framework for stablecoins and other novel types of digital assets.  “Current statutory and regulatory frameworks do not provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment product.”

Liang underscored that the legal framework must address the prudential risks of stablecoins:  (i) the risk of stablecoin runs; (ii) payment system risks; and (iii) the risks due to concentration of economic power.  Liang commented that much work remained to be done despite the the banking agencies’ recent crypto sprint and the SEC and CFTC’s assessment of authorities over digital exchanges.

Committee members expressed concerns that limiting stablecoin issuance to banks could have a negative impact on competition in the sector and on racial equity among its potential customers. Committee Chair Maxine Waters questioned whether technology companies should be allowed to issue stablecoins.  Citing to the Liang to the historical “separation of banking and commerce,”  Liang stated that, “[i]n this case, we believe stablecoins, as a payment instrument, should not be issued by a technology firm.”

Putting it into Practice: This hearing should be viewed in light of the recent push to regulate the use and transmission of virtual currencies (we previously discussed this recent trend in earlier Consumer Finance & FinTech Blog posts herehere, and here).  Stablecoins, like other virtual currencies, are a hot topic among U.S. regulators where companies are dealing with unclear regulatory guidelines and confusion related to which agency regulates what aspect of cryptocurrencies. The regulatory frameworks that apply to stablecoin issuers and service providers are viewed by many to be inconsistent, creating opportunities for regulatory arbitrage and uncertainty among stablecoin users.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 41
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

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A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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