US Banking Official Addresses Approach To Regulating Crypto-Assets – Fin Tech

The acting Chairman of a US federal agency that supplies deposit
insurance to U.S. depository institutions recently gave a speech
addressing the regulation of crypto-assets. Among other things, the
Chairman noted that federal banking regulators are taking “a
cautious and deliberate approach … to bank participation in
crypto-asset-related activity … for several reasons: (a) the risk
of these activities to safety and soundness, consumer protection,
and financial stability; (b) the lack of history and familiarity
with these assets both in the marketplace and within regulated
financial institutions; and (c) the dynamic nature of these
assets.” According to the Chairman, “before banks engage
in crypto-asset-related activities, it is important to ensure that:
(a) the specific activity is permissible under applicable law and
regulation; (b) the activity can be engaged in [in] a safe and
sound manner; (c) the bank has put in place appropriate measures
and controls to identify and manage the novel risks associated with
those activities; and (d) the bank can ensure compliance with all
relevant laws, including those related to anti-money
laundering/countering the financing of terrorism and consumer
protection.”

Addressing stablecoins, among other things the Chairman said,
“Thus far … stablecoins have predominantly been used as a
vehicle to buy and sell crypto-assets for investment and trading
purposes – there has been no demonstration so far of their
value in terms of the broader payments system.” However, the
Chairman noted, “there may be merit in continuing to examine
the potential benefits associated with payment stablecoins …
designed specifically as an instrument to satisfy the consumer and
business need for safe, efficient, cost-effective, real-time
payments.”

The Chairman cited “three important features that could
make payment stablecoins significantly safer than the stablecoins
currently in the marketplace”: (1) ensuring prudential
regulation and separation from deposit taking by issuance of a
payment stablecoin through a bank subsidiary; (2) requiring payment
stablecoins to be backed dollar for dollar by high-quality,
short-dated U.S. Treasury assets; and (3) transacting payment
stablecoins on permissioned ledger systems with robust governance
and compliance mechanisms. The Chairman also noted that to the
extent a payment stablecoin system is developed, it should
complement the forthcoming FedNow system and the potential future
development of a U.S. central bank digital currency.

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