On November 2, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra released a statement on the Report on Stablecoins issued by the President’s Working Group on Financial Markets, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC).
Stablecoins are virtual coins typically pegged to a sovereign currency. The Report requests that “Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal prudential framework on a consistent and comprehensive basis.” The entities recommend that any such legislation require: (1) stablecoin issuers to be insured depository institutions, (2) custodial wallet providers to be subject to federal oversight, and (3) stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities.
While the CFPB was not a party to the Report, Chopra stated that the CFPB will take steps related to the stablecoin market.
First, the CFPB has solicited public input on how Big Tech companies might scale the use of digital payment networks, including cryptocurrencies. This request for input follows the CFPB’s recent orders to Google, Apple, Facebook, Amazon, Square, and PayPal regarding their payments-related plans and practices.
Second, the CFPB is monitoring for broader consumer adoption of cryptocurrencies. While stablecoins are primarily used for speculative trading, they may be used in connection with consumer deposits, stored value instruments, retail and other consumer payments mechanisms, and in consumer credit arrangements. Consumer protection laws, such as prohibitions on unfair, deceptive, or abusive acts or practices, will apply to the latter use of stablecoins.
Lastly, the CFPB stated it will engage with the Financial Stability Oversight Council to determine whether to initiate designation proceedings and ascertain whether certain nonbank stablecoin-related activities or entities are systemically important.
Our Take. While the Report targets stablecoins, it further emphasizes the gaps in regulation and the need for legislation on virtual currencies as a whole, as we previously discussed in our blog post here. At this time, it is unclear whether the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), and/or another body will govern virtual currencies.