Blockchain Legal Resource

On June 8, 2022, New York’s Department of Financial Services released interpretive guidance on the “Issuance of U.S. Dollar-Backed Stablecoins.” The guidance applies to entities that issue stablecoins under DFS supervision, and addresses three broad topics—redeemability, reserve requirements, and monthly attestation by an independent CPA firm.

On January 20, 2022, the Federal Reserve Board published a discussion paper on the potential for a US central bank digital currency, or CBDC.  Entitled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” the paper provides further insight into the public policy concerns guiding the Fed as it deliberates whether to adopt a US CBDC.

In connection with a December 14, 2021, hearing of the Senate Banking Committee focused on the topic of stablecoins, Ranking Member Pat Toomey (R-PA) released a collection of principles that he hopes will influence the development of a future legislative framework for the asset class. Senator Toomey’s principles offer a more flexible approach to stablecoins in contrast to the approach embraced in a recent report on stablecoins released by the President’s Working Group, which advocated for limiting stablecoin issuances to entities that are insured depository institutions under the oversight of federal banking regulators.

On November 23, 2021, the Senate Committee on Banking, Housing, and Urban Affairs sent a series of letters to prominent stablecoin issuers and cryptocurrency exchanges. Citing the recent President’s Working Group on Financial Markets report on stablecoins, the letters seek to clarify basic operational features of various stablecoins which the Committee believes is critical to improving its understanding of digital assets.

On 25 October 2021, the Dubai Financial Services Authority (DFSA), the regulatory body of the Dubai International Financial Centre (DIFC), announced that it implemented a regulatory framework for investment tokens issued or traded within the DIFC (Regulatory Framework for Investment Tokens), which follows from the Consultation Paper No. 138 (Regulation of Security Tokens) it issued earlier in March this year. Consequently, the UAE advances its status as a hub for technological innovation (and entrepreneurs); it fully embraces the global adoption of cryptocurrencies and blockchain technologies, as well as the demand for Investment Tokens, and the number of companies within the DIFC that are eager to issue, and trade in them, is steadily on the rise.

On November 1, 2021, the President’s Working Group (PWG) released a long-awaited report on stablecoins (the “Report”).¹ The Report outlines a number of significant legislative recommendations for Congress to consider as well as a number of interim measures that agencies should adopt under their existing authorities to protect against prudential risks in the near-term.

As we have previously reported, the New York Attorney General has been in protracted litigation to enforce an investigative subpoena under New York’s expansive Martin Act against cryptocurrency exchange Bitfinex and its affiliated companies that issue the Tether stablecoin. On February 23, 2021, the Attorney General announced a definitive settlement of the matter.

The Office of the Comptroller of the Currency (OCC) issued Interpretive Letter 1174 on January 4, 2021, clarifying the authority of national banks and federal savings associations to buy, sell, and issue stablecoins and participate in independent node verification networks (INVNs) in order to conduct payment activities and other bank-permissible functions.

Newly-proposed federal legislation would require all issuers of stablecoins and certain other digital asset companies to obtain a bank charter as a condition to operation. Referred to as the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, the draft legislation is intended to shift certain digital currency activities into the regulated banking framework.

On Monday, September 21, 2020, the Office of the Comptroller of the Currency (“OCC”) issued an interpretive letter on the authority of national banks and federal savings associations to hold stablecoin reserves (the “OCC Interpretive Letter”). That same day, the Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (“FinHub”) issued a statement on the OCC’s interpretive letter. While not an official joint statement, the federal agencies were clearly aligned as FinHub’s statement on the OCC Interpretive Letter was posted on its website before the OCC published its letter.

In a recent speech entitled “Reinventing the Wheel (with More Automation)”, Andrew Bailey, Governor and chief executive of the Bank of England, discussed the future of digital currencies. According to Governor Bailey, we have reached the point in the cycle of innovation in payments where it is essential that we set the standards and thus the expectations for how innovation will take effect. It should not, in his opinion, happen the other way round, with the standard setting playing catch up.

On June 30, 2020, the full Senate Committee on Banking, Housing, and Urban Affairs held a virtual hearing entitled “The Digitization of Money and Payments.” The hearing focused on stablecoins and the prospects for a US central bank digital currency, or CBDC.

On April 14, 2020, the Financial Stability Board (FSB) issued a consultative paper entitled “Addressing the Regulatory, Supervisory and Oversight Challenges Raised by ‘Global Stablecoin’ Arrangements.” The paper considers various risks and vulnerabilities of global stablecoins, or GSCs, which are defined to include a crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets, in each case with a potential reach and adoption across multiple jurisdictions and the potential to achieve substantial volume. The white paper then surveys existing regulatory, supervisory and oversight challenges, particularly in the cross-border context; contemplates the role of international standard setters in GSC governance; and makes high-level recommendations for regulatory, supervisory and oversight responses.

The Federal Reserve Board’s most recent semi-annual Financial Stability Report, issued November 15, 2019, includes a lengthy discussion of potential systemic risks posed by stablecoins. In the report, the Fed observed that innovations fostering faster, cheaper and more inclusive payments could complement existing payment systems and improve consumer welfare if appropriately designed and regulated. But the Fed also warned that the emergence of global stablecoin payment networks introduces important challenges and risks related to financial stability, monetary policy, money laundering and terrorist financing, and consumer and investor protection.

A recent speech by Fed Governor Lael Brainard entitled “Digital Currencies, Stablecoins, and the Evolving Payments Landscape” discusses a number of topics of interest to the crypto community, including the development of stablecoins and their potential impact on the global payments system. In particular, Governor Brainard opined that the widespread adoption of stablecoins could have implications for the role of central banks and monetary policy.