New draft of House stablecoin regulation focuses on state regulators, issuers

WASHINGTON — Republicans on the House Financial Services Committee on Monday released a new draft of legislation to regulate stablecoin issuers, part of an effort to restart negotiations with Democrats that stalled last fall on an issue that all sides agree is ripe for regulation.

The new draft bill is half the length of a previous draft and is closely tailored to focus on rules governing the registration and approval process for individual prospective stablecoin issuers.

Stablecoins are a type of cryptocurrency issued by private entities and designed to maintain a stable value pegged to a traditional asset, like the U.S. dollar or a short-term Treasury bill. They are not used in brick-and-mortar commerce or typically accepted as payment for goods, but have become very popular on crypto platforms.

The bill contains many of the features of a version that was negotiated last year, such as the requirement that payment stablecoin issuers be approved and regulated by either a "federal payment stablecoin regulator" or "a registered State qualified payment stablecoin issuer."

In order to be approved as an issuer, a stablecoin provider would need to meet reserve capital requirements and provide monthly disclosures of their reserve portfolios.

It also clarifies and updates U.S. law to confirm that stablecoins are not securities, and by extension, should not be regulated by the SEC.

But the new draft envisions a larger role in the market for state regulators, despite the fact that the vast majority of states do not have a stablecoin regulatory framework in place yet.

This version also seeks to give state regulatory agencies more flexibility as to the specific requirements for approval of stablecoin issuers, as long as these requirements meet a basic "floor" outlined in the federal legislation.

For example, it softens prior language that required payment stablecoin issuers to honor all requests to redeem stablecoins for cash within "one day" after the request was made. The new language says issuers must "establish procedures for timely redemption of outstanding payment stablecoins."

The bill further provides states with more time to investigate and resolve potential noncompliance issues that arise with those states' approved issuers.

"The state will enforce its laws, and the Federal Reserve will have backstop authority for depository [institutions] and credit unions and subsidiaries," said a Republican committee aide who was granted anonymity as a condition of briefing reporters on the bill.

The latest version was crafted by committee Republicans, and described by GOP aides as a "starting point" for conversations about stablecoin regulation with House Democrats, the Senate and the White House in the coming months. It does not have any Democratic support so far.

It was not clear Monday what the next step for the legislation would be, or when it might be formally introduced in the House.

"We're hoping we can gather feedback and have fruitful conversations, and that will guide our next steps," the aide said.

The stable digital assets market overall is believed to be worth more than $180 billion, and operates with no specific legislative framework.

This has led to what lawmakers describe as a turf war between regulators, with the Commodities Futures Trading Commission seeking to regulate stablecoins as commodities, and the Securities and Exchange Commission seeking to regulate them like securities.

Read the new version of the proposed bill here: