Two United States Senators – Kirsten Gillibrand and Cynthia Lummis – have issued a new bill that focuses on stablecoin oversight, according to a report from The Block. The proposal comes after Gillibrand said at the Bitcoin Policy Summit last week that a new stablecoin legislation would come soon.
The bill comes as global authorities actively work on regulating stablecoins and ensuring their safety, legality, and practicality in the financial system.
The “Lummis-Gillibrand Payment Stablecoin Act” seeks to establish a clear and comprehensive legal system for stablecoin and strike a balance between consumer protection and innovation.
The bill mandates that stablecoin issuers maintain one-to-one reserves in cash or cash equivalents to back their tokens. Additionally, to prevent potential market manipulations or financial instability, stablecoins that are not backed by reserves will be banned.
More Regulations Coming in the US
The bill also aims to prohibit the use of stablecoins for illegal or unauthorized activities, such as money laundering, and to reinforce the legal framework within which stablecoins must operate.
The bill notes that stablecoins potentially benefit cross-border transactions, making them faster and cheaper. According to Senator Gillibrand, this legislation is essential to maintaining the US dollar’s dominance and encouraging responsible innovation.
The bill also highlights the promise of stablecoins in supporting digital-native applications while ensuring strong consumer protections.
“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the US dollar’s dominance, promoting responsible innovation, protecting consumers and cracking down on money laundering and illicit finance,” said Senator Gillibrand
A Safer World?
The bill’s focal point is user safety. As shared, it seeks to integrate stablecoin issuers into the existing dual banking system of the United States, where both federal and state entities have regulatory authority. This would allow federal and state regulators to monitor stablecoin activities properly.
Another major highlight is the user protection policy in the event of issuer insolvency. The bill introduces measures for what happens if a stablecoin issuer becomes insolvent. It includes provisions for Federal Deposit Insurance Corporation (FDIC) conservatorship and resolution processes to protect consumers and maintain stability in the financial system.
In 2022, the two senators introduced the Lummis-Gillibrand Responsible Financial Innovation Act, which focuses on combating the illicit use of crypto assets and supports law enforcement. The bill was reintroduced in July last year.
Senator Lummis said their efforts target bringing crypto assets within the regulatory framework. At the same time, they also want to foster sector innovation to modernize their financial industry.
Global Regulators Target Stablecoins
Following the collapse of the TerraUSD (UST) stablecoin and its sister token LUNA, global policymakers have focused on the stablecoin’s legal framework.
The UK recently announced plans to issue new legislation on cryptocurrencies and stablecoins in July. According to British Economy Minister Bim Afolami, the government will soon enact legislation on stablecoins as well as staking, trading, and custody of cryptocurrencies.
Last year, Britain passed a financial markets bill that included provisions for regulating cryptocurrencies. Following this, the UK Financial Conduct Authority (FCA) outlined the requirements for promoting cryptocurrencies, with four main forms receiving approval from the agency.
In February 2023, government agencies, including the FCA and the Bank of England (BoE), collaborated on a consultation process to determine how best to regulate stablecoins.
The move resulted in a division of responsibilities: the BoE will oversee large stablecoin providers with the potential to impact the financial system, while the FCA will manage and supervise the broader cryptocurrency space.
The coming Market in Crypto-assess (MiCA) regulation, slated for full implementation by the end of this year, will also influence stablecoin issuers in the European market.
In the EU, fiat stablecoins are considered electronic money if they represent a claim on the issuer and must comply with the existing Electronic Money Directive (EMD), MiCA confirms. Additional requirements under MiCA are expected to come in July 2024.
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