On December 21, 2022, outgoing Senator Pat Toomey (R-PA) introduced legislation entitled the Stablecoin TRUST Act of 2022 that would establish the first-ever federal regulatory framework for payment stablecoins. In the press release announcing the proposed legislation, Senator Toomey stated that he “put forward a regulatory model that won’t undermine competition by favoring entrenched incumbents — for example, by limiting payment stablecoin issuance to insured depository institutions.” Senator Toomey further stated that the proposed bill would “ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity.”
The proposed bill defines “payment stablecoins” as a digital asset that is: (i) designed to maintain a stable value relative to a fiat currency or currencies (like the U.S. Dollar); (ii) is convertible directly to fiat currency by an issuer; (iii) is designed to be widely used as a medium of exchange; (iv) is issued by a centralized entity; (v) does not inherently pay interest to the holder; and (vi) is recorded on a public cryptographically-secured distributed ledger. If passed by Congress, the bill would:
- Clarify that payment stablecoins would be regulated by the Office of the Comptroller of the Currency (OCC).
- Create a new federal license issued by OCC, designed specifically for payment stablecoin issuers that would then be referred to as “National Limited Payment Stablecoin Issuers”.
- Authorize National Limited Payment Stablecoin Issuers, depository institutions (as defined in section 19(b)(1) of the Federal Reserve Act), state-based money transmitting businesses, non-depository trust companies, entities authorized by state banking supervisors, and national trust banks to issue payment stablecoins, and grant such entities Federal Reserve master accounts and services.
- Establish new, standardized public disclosure requirements for all payment stablecoin issuers.
- Require all issuers to fully back their payment stablecoins with high-quality liquid assets.
- Remove any uncertainty for depository institutions by clarifying that they are permitted to issue payment stablecoins.
- Allow depository institutions the option to separate payment stablecoin issuance from other activities and receive equitable and tailored regulatory treatment.
- Clarify that payment stablecoins are not securities and payment stablecoin issuers are not investment companies or investment advisers, which would take such issuers out of the jurisdiction of both the Securities and Exchange Commission and the Commodities Futures Trading Commission.
- Apply existing privacy and data security requirements to payment stablecoin issuers.
- Reject the notion that existing Bank Secrecy Act reporting requirements should be applied to payment stablecoins.
- Clarify that private transactions, not involving an intermediary or a financial institution, do not need to be reported.
- Protect consumers by clarifying that payment stablecoin holders would have priority in the event of an issuer’s insolvency.
- Clarify that the legislation will not affect non-payment stablecoins (e.g., stablecoins backed by commodities or other digital assets, or algorithmic stablecoins).
- Clarify that state banking supervisors are permitted to impose additional or stricter regulatory standards on state-licensed payment stablecoin issuers.
- Clarify that insured depository institutions may accept or receive deposits and issue digital assets that represent deposits.
It is important to note that Senator Toomey retired at the end of the congressional session, on January 3, 2023. Tim Scott (R-SC) replaced Senator Toomey as the Senate Banking Committee’s Ranking Member, whose views on stablecoins have yet to be publicized.
Troutman Pepper will continue to monitor the progress of the Stablecoin TRUST Act of 2022 and report on any relevant updates as they happen.