The stablecoin bill in Congress requires the Federal Reserve System and state banking regulators to approve all stablecoin plans by non-bank entities before they can be legally issued.
Stablecoin issuers approved by state regulators will have to register with the Federal Reserve within 180 days to legally continue their operations, media reports reports seeking access to the draft law, it said on Wednesday.
In July, CryptoPotato reported to be a stable banknote postponed by more than a month due to a last-minute change proposed by Treasury Secretary Janet Yellen. She argued that legislation should ensure the separation of client assets from wallet custodians to preserve them in a bankruptcy scenario.
In June, Japan passed a similar law recognizing stablecoins as digital money which must be linked to yen or other legal tender.
Algo Stablecoins to be banned
New stablecoins backed by assets created by the same issuers or “endogenously collateralized stablecoins” will not be allowed for at least the next two years. Any such existing stablecoin will have to change its business model and obtain new approval from the relevant authorities within two years.
Stablecoins issued without proper approval by the relevant regulators will be illegal and will be punishable by up to five years in prison and a million dollar fine. The bill calls for such cryptocurrencies to be secured by cash or highly liquid assets such as treasury bonds.
The bill aims to create a regulatory framework around stablecoins and asks the Federal Reserve to study the economic impact of the US digital dollar (CBDC). It is also commissioning a study on algorithmic stablecoins in consultation with the Fed, the Federal Deposit Insurance Corporation, the OCC, and the Securities and Exchange Commission.
Banks need regulatory approval
Banks and other traditional financial institutions will need approval from federal banking regulators — the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation — the bill says, according to media reports.
It also addresses the issue of stablecoin interoperability and provides standard-setting power to federal banking regulators and state watchdogs. The draft law aims to harmonize the assets and accounting standards of stablecoins with banks and credit unions.
The draft law prohibits the commingling of client funds and their keys with those of stablecoins and other assets so that users can quickly redeem their investments in the event of insolvency or bankruptcy.
He can come to vote at any time
The bill is being negotiated by House Financial Services Committee Chairwoman Maxine Waters and Rep. Patrick McHenry. It is still subject to change as it has not yet been signed by Waters and McHenry.
Although the exchange date has not yet been set, the Committee could vote on the bill as early as next week, as it only has until the end of the current year to consider it, and the upcoming mid-term elections do not leave much room for further delays.