$127B stablecoin industry should be regulated like banks, Treasury says

Congress should crack down on issuers of “stablecoins” — a ballooning cryptocurrency pegged to fiat currencies like the dollar — and regulate the technology as a traditional bank, according to a report issued by the Treasury Department.

The report, compiled by the President’s Working Group on Financial Markets, highlights the possible risks the fast-growing $127 billion industry presents, including possible “destabilizing runs, disruptions in the payment system, and concentration of economic power.”

“The absence of appropriate oversight presents risks to users and the broader system,” Treasury Secretary Janet Yellen wrote in the Monday report. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter.”

The report recommends Congress pass a legislative framework that would make stablecoins subject to rules most financial institutions comply with, including insuring depository institutions and meeting risk management standards.

“Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy,” the report adds. “The rapid growth of stablecoins increases the urgency of this work.”

While stablecoins are just 5 percent of overall cryptocurrency assets, they’ve grown approximately 500 percent over the last year. Stablecoins are also involved in three quarters of all cryptocurrency trades.

In a separate statement, Securities and Exchange Commission Chair Gary Gensler added that regulation is needed to crack down on stablecoins to make sure they comply with laws that ensure “anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity.”

The Federal Reserve, SEC and Commodity Futures Trading Commission also contributed to the 22-page memo outlining the risks and solutions mitigating risks stemming from stablecoin.

The report comes amid a broader discussion of how cryptocurrencies should be regulated.

In recent weeks, both the CFTC and the SEC have asked for more authority from Congress to regulate cryptocurrencies.

Acting chair of the CFTC Rostin Behnam argued with the Senate Agriculture Committee last week that the CFTC should have jurisdiction over the $2 trillion cryptocurrency market — in part because 60 percent of it, including bitcoin, is classified as a commodity.

Likewise, the SEC’s hard-charging Gensler asked Congress last month to expand the stock market regulator’s jurisdiction over digital assets.

Since taking over the SEC, Gensler has argued time and time again that cryptocurrencies are a security and therefore should be regulated by the SEC.

Gensler struck a unified tone in Monday’s statement, saying, “While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.”