Groups urge SEC, other FSOC members not to wait for Congress on stablecoin oversight

A coalition of investor protection, financial reform and other groups on Dec. 16, 2021, urged the Financial Stability Oversight Council (FSOC) not to wait for Congress to act on stablecoins and instead to “urgently clarify and emphasize the existing enforcement and supervisory authorities” of its member agencies, such as the SEC and Commodity Futures Trading Commission (CFTC).

The urgency of immediate action by the financial regulators “cannot be overemphasized given the rapid growth of stablecoins and the increasing threats that stablecoins pose to investor protection, financial stability and national security,” the groups wrote in the letter to SEC Chair Gary Gensler, CFTC Chairman Rostin Behnam and Treasury Secretary Janet Yellen, who chairs FSOC.

Signing on to the letter were the Americans for Financial Reform Education Fund, the Consumer Federation of America, Public Citizen, Better Markets, the Revolving Door Project and 20/20 Vision, as well as George Washington University Law School Professor Arthur Wilmarth, Jr.

The letter underscores the broader frustration over the regulatory uncertainty surrounding stablecoins, digital assets whose value is pegged to the U.S. dollar or other stable asset. Despite growing calls for Congress to enact comprehensive cryptocurrency framework, majority Democrats on the House Financial Services Committee and Senate Banking Committee have yet to rally around any such legislation.

Both panels have held cryptoasset hearings in recent weeks. During those hearings, Republican lawmakers, and some in the crypto industry, placed particular focus on arguing against the SEC taking the lead in digital asset oversight.

The groups, in their letter, cited the SEC’s recent subpoena to cryptocurrency mining company Marathon Digital Holdings Inc. relating to a Montana data center, as well as the CFTC’s order in October against stablecoin issuer Tether. The CFTC ordered Tether to pay $41 million to settle charges “for making untrue or misleading statements and omissions of material fact” around the assets backing the stablecoin.

The groups also cited an early November stablecoin report by the President’s Working Group on Financial Markets (PWG), which did not name a lead regulator for stablecoins but made a series of legislative recommendations that included requiring stablecoin issuers to be insured depository institutions.

“Even if stablecoins are eventually treated as deposits... the SEC clearly has existing authority, under controlling legal precedent such as Marine Bank v. Weaver, to treat stablecoins and other digital assets as securities under the federal securities laws unless those instruments are issued by FDIC-insured banks or similarly regulated foreign banks.”

In the Supreme Court’s 1982 ruling in Marine Bank v. Weaver, the High Court concluded that “it is unnecessary to subject issuers of bank certificates of deposit to liability under the antifraud provisions of the federal securities laws, since the holders of bank certificates of deposit are abundantly protected under the federal banking laws.”

The letter comes days after Sen. Pat Toomey of Pennsylvania, the ranking Republican on the Senate Banking Committee, called for legislation stipulating that non-interest-bearing stablecoins “are not necessarily securities and therefore shouldn’t automatically be regulated as such.”

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