FSOC urges lawmakers to develop ‘comprehensive’ stablecoin regulatory regime

A new report from the Financial Stability Oversight Council today warned of the dangers that cryptocurrencies and other digital assets “if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation.” FSOC pointed specifically to three gaps in the existing regulatory structure with respect to cryptocurrencies: limited direct federal oversight of the spot market for cryptoassets that are not securities; opportunities for regulatory arbitrage; and whether vertically integrated market structures can or should be accommodated under existing laws and regulations.

Among other things, FSOC called for legislation that would create “a comprehensive prudential framework for stablecoin issuers that also addresses the associated market integrity, investor and consumer protection and payments system risks, including for entities that perform services critical to the functioning of the stablecoin arrangement.” FSOC recommended that they ensure that they follow several guiding principles, including “same activity, same risk, same regulatory outcome.”

The committee also recommended continued enforcement of existing rules and regulations, emphasizing the regulatory expectation that banks that engage in crypto activities should “do so in a safe and sound manner.”