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House Committee Challenge Feds on Stablecoin

House Financial Services Committee voices concerns to Fed over regulatory actions on payment stablecoins, citing potential undermining of congressional framework efforts.

Key Points

  • House Financial Services Committee leaders express concerns to Fed about recent regulatory actions on payment stablecoins.
  • Committee objections center on Fed’s supervision letters undermining Congress’s regulatory framework efforts.
  • Fed’s actions seen as discouraging banks from involvement in stablecoin ecosystem due to added regulatory burden.
  • Fed criticized for not complying with Administrative Procedure Act, highlighting struggle between Congress and regulatory agencies.

The House Financial Services Committee’s top brass, including Chairman Patrick McHenry (NC-10), Vice Chairman French Hill (AR-02), and Chairman of the Oversight and Investigations Subcommittee, Bill Huizenga (MI-04), have formally expressed their concerns to the Federal Reserve Board (Fed) regarding its recent regulatory moves on payment stablecoins.

Objections Raised to Fed’s Regulatory Letters

In a letter addressed to Fed Chairman Jerome Powell, the trio voiced their objections to the Fed’s recent supervision and regulation letters, namely “Creation of Novel Activities Supervision Program” (SR 23-7) and “Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens” (SR 23-8), both issued on August 8, 2023.

The committee members believe these actions could potentially undermine the progress Congress has made in establishing a regulatory framework for payment stablecoins.

The letter highlights Congress’s understanding of the need for regulatory clarity in the digital asset ecosystem, emphasizing the bipartisan effort of the “Clarity for Payment Stablecoins Act” to provide such clarity.

However, the Fed’s issuance of SR 23-7 and SR 23-8, shortly after the Committee’s endorsement of the aforementioned act, has raised concerns.

Fed’s Actions Discouraging Banks from Engaging with Stablecoins

The committee members argue that the Fed’s actions, particularly through SR 23-7 and SR 23-8, seem to deter banks from issuing payment stablecoins or participating in the stablecoin ecosystem.

They further assert that the “Novel Activities Supervision Program” under SR 23-7 imposes additional regulatory burdens on banking institutions engaging with crypto-assets.

This, combined with previous policy statements and decisions by the Fed, could lead to an implicit prohibition on banks’ involvement in the digital asset ecosystem

Furthermore, the committee members pointed out that the Fed did not follow the notice and comment process as mandated by the Administrative Procedure Act when issuing SR 23-7 and SR 23-8.

They view this as an attempt by the Fed to set policy without being accountable to market participants and the public.

Chairman McHenry Criticizes Treasury

Chairman of the House Financial Services Committee, Patrick McHenry, has been actively working to protect laws governing digital assets.

He criticized the Notice of Proposed Rulemaking on the requirements for reporting digital assets, released by the Internal Revenue Service (IRS) and the U.S. Department of the Treasury on August 26, 2023, as a detrimental effort to the American digital asset ecosystem.

Concluding Thoughts

Widespread criticism has been leveled at the Treasury and IRS’s proposed rules, which would require brokers to disclose sales and swaps of digital assets made by their clients.

The Tax Law Center at NYU Law has also expressed worries and warned of possible financial repercussions due to the delay in adopting these measures.

In conclusion, the struggle between Congress and regulatory agencies highlights the need for a well-defined strategy that protects consumers and market players while ensuring the growth of the digital asset industry.