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.

Senator Toomey’s principles include the following:

  • Stablecoin issuance should not be limited to insured depository institutions.
    • First, stablecoin issuers have different business models than traditional banks.
    • Second, requiring all stablecoin issuers to become banks would stifle innovation.
    • Third, the regulation of payments activities should create a level playing field.
  • Stablecoin issuers would choose from at least three regulatory regimes based on their business models:
    • operate under a conventional bank charter;
    • acquire a special-purpose banking charter designed for stablecoin providers in accordance with new legislation; or
    • register as a money transmitter under the existing state regime and as a money services business under FinCEN’s federal regime.
  • All stablecoin issuers should have to adopt clear redemption policies, disclosure requirements regarding the assets backing the stablecoin, and potentially meet liquidity and asset quality requirements.
  • Commercial entities should be eligible to issue stablecoins, provided they choose one of these regimes.
  • Non-interest bearing stablecoins should not necessarily be regulated like securities.
  • Regulation should protect the privacy, security, and confidentiality of individuals utilizing stablecoins, including allowing customers to opt out of sharing any information with third parties.
  • Financial surveillance requirements under the Bank Secrecy Act should be modernized, including for existing financial institutions, in light of emerging technologies like stablecoins.

It remains to be seen if sufficient support for this—or any—approach emerges in Congress on the topics of digital assets more broadly, or stablecoins specifically.