A belated reaction to a really outstanding Executive Roundtable provided by British American Business on Crypto Assets and Regulation. Kudos for BAB’s convening powers as we had the Acting Comptroller of the Currrency, head of the OCC – Michael Hsu; the head of Payments and Policy at the Bank of England – Matthew Osborne; and the Payments and Crypto Policy specialist at the FCA – Helene Oger-Zaher, plus many important global banks, including Barclays, Standard Chartered, Citi represented on the Roundtable. And Broyd Partners, of course.
My personal key take-aways:
It is now all about Stablecoin, rather than BitCoin or Ethereum, (and certainly not the nonsense that is Dogecoin).
As a broad and simple statement, the major regulators are supportive of the increased use and adoption of stablecoin, especially as a payment’s facilitator – within their regulatory parameters.
The recently published President’s Working Group papers were transformational for the industry, in that they required that any US dollar stablecoin be brought under traditional banking regulation. Activities were required to be put in the hands of a regulated bank – not a commercial enterprise. Quotes from the PWG may be helpful.
“To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions.” i.e. regulated by the FDIC.
“To address concerns about payment system risk legislation should require custodial wallet providers to be subject to appropriate federal oversight.” i.e. Banks supervised by the FRB or OCC.
“To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities.” i.e. Keep activities within the broad domain of FRB, OCC, SEC, CFTC, FDIC.
By putting a crypto asset, tied to a fiat currency – in this case the US Dollar – under the jurisdiction of banking regulators, then the asset class can be expanded within a regulated framework.
A stablecoin should be able to operate in a financial system where it could be redeemed against the fiat currency, on demand, at par, with trust. This is the regulatory aspiration.
The regulators were positive towards the use of stablecoin as a mechanism to improve payments. They wanted to enable creativity, they were supportive of the use of the Blockchain. They supported technological innovation, but within their regulatory perimeters.
As regulators, they had many of the tools to help with regulating, and supporting stablecoin, as mechanisms of payment, but did not have the tools to manage crypto’s use in such areas as gaming and NFTs.
One of the key concerns for the US regulators was the risk of a run on a stablecoin, causing liquidity issues, and broader financial markets concerns with the fiat currency, that could spread into traditional markets.
Policies for the use of digital asset and stablecoins in particular, and crypto assets in general, are underway, with the Financial Stability Board, SEC, OCC, FRB, Bank of England, FCA, EU Markets Directives all working on policy agreements and statements. There has been more done and is more underway than most people assume. Not a quick process, but it is happening.
Regulatory clarity is the single biggest issue to the banking expansion for use of crypto assets.
And I sensed an agreement by everyone on the Roundtable that using stablecoins as a mechanism for payments will happen and will become part of our financial infrastructure.