Republicans on the House Financial Services Committee are taking another swing at stablecoin legislation with a discussion draft revealed Monday afternoon, which may mark a new starting point for negotiations with Democrats.
The bill – the second legislative concept published in as many weeks – would create a definition of “payment stablecoins,” specifying what types of entities could issue them and define how these companies should handle reserves.
Unlike a previous version of the bill, which was published on the committee’s website ahead of a hearing on stablecoins last week, the new version leaves out algorithmic stablecoins, though it does repeat clauses stating that an issuer can either be a subsidiary of a federally insured depository institution or a state or federally regulated nonbank company.
The draft bill also makes clear that stablecoins must be fully backed by safe reserves that are subject to monthly reviews by registered accountants, which would eliminate the possibility of math-backed stablecoins being able to comply.
It also declares that stablecoins are not securities, settling a controversial point in the ongoing debates over whether tokens are securities or commodities, which decides which agency will oversee their trading – the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission. The SEC had recently warned stablecoin issuer Paxos that it may face an enforcement action asserting that Binance USD is an unregistered security.
It’s unlikely this bill will have the immediate bipartisan support it needs to become a law. During last week’s hearing, Maxine Waters (D-Calif.), the senior-most Democrat on the committee, said the legislative body should be “starting from scratch.” She expressed frustration that the Republicans had gone ahead and worked on this draft without Democratic input.
A senior Republican staff member said a copy of this draft was provided to Waters’ staff, and the Republicans hope it’ll start a new negotiation.
Senator Sherrod Brown (D-Ohio), who runs the Senate Banking Committee, has not committed to any action around stablecoin legislation, only saying through a spokesperson that he would “look at” the different efforts being put together. Any stablecoin bill will also have to pass through his committee.
One of the most hotly debated points of the legislation since last year has been how much authority is given to the federal and state regulators. This version would make a lane for state-based licensing for issuers and maintain the state’s enforcement powers, but it also provides that an enforcement disagreement could be overruled by the Federal Reserve.
The legislation would also put issuers’ chief executives on the hook for putting out faulty information on a stablecoin’s reserves, calling for them to sign off on the monthly numbers and be criminally liable if the reports are known to be false.
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McHenry’s committee is separately working on legislation to regulate market structure in the crypto sector, the staffer said, and that bill is expected to address the key questions the industry is anxious to have answered about which agencies will have what roles overseeing digital assets. One of the panel’s subcommittees scheduled a hearing on the topic for April 27.
