Circle Exec: Banking Rules on Stablecoin Issuers May End the Industry

Lawmakers must be careful when it comes to stablecoin regulation, or the industry might disappear entirely, Circle’s General Counsel Flavia Naves warned. 

“Trying to place the existing constructs of traditional banks on stablecoin issuers may have the effect of simply banning the entire industry altogether,” Naves said Thursday during a virtual panel discussion with Merkle Science. “I am sure this is not the desired intent of the regulators, but it may just go in that direction.” 

Naves was referring to the recent proposal from the President’s Working Group on Financial Markets, which calls on Congress to issue a law requiring stablecoin issuers to be insured banks. The rule has the potential to disrupt innovation, Naves said, and legislators need to make sure that they have a full understanding of the technology. 

Other panelists agreed that further clarity is needed, however most are skeptical that any regulatory measures will be made in the near future. 

“The hope of legislation I think in the next 12 months is slim,” said Jamie Whetzel, deputy general counsel at PNC Bank. “Unfortunately the regulators of this industry are refereeing a football game of today with a rulebook from the 1930s and ’40s, or even older, so we have to take pity on the regulators and work with them.” 

Both the House and Senate hosted stablecoin hearings this month, and neither committee seems any closer to agreeing on how to address the emerging technology, Whetzel said. There appears to be a party divide between Republicans and Democrats when it comes to digital assets, and the potential for a divided government come the next election will only further slow progress, he added. 

Naves’ comments come as representatives from a slew of industries call on the US Securities and Exchange Commission (SEC) and other regulators to take stronger action against stablecoins. Seven independent US research and advocacy organizations, including the Americans for Financial Reform Education Fund and the Revolving Door Project, released a letter on Thursday addressed to the SEC, Secretary of Treasury Janet Yellen and the Commodity Futures Trading Commission (CFTC).

“Despite the explosive growth of the stablecoin market, stablecoins are not used to any substantial extent to make ordinary commercial payments but are instead primarily used for speculation, tax avoidance and evading critical safeguards for the banking system and national security,” the letter states. 

SEC Chairman Gary Gensler has referred to stablecoins as “poker chips,” due to their speculative nature and oftentimes unreported reserves. He has hinted that he is keen on advancing digital asset oversight, although his most recent policy agenda does not mention the technology. 

“I don’t think technologies last long outside of a social and public policy framework,” Gensler said in September. 

When regulation does eventually come, Naves said, Circle is looking forward to working with policymakers to make sure that all interested parties are being represented. 

“We want to make sure that we take the time to understand, to put the proper legislation in place, which I believe will happen,” she said. “We must ensure that we are continuing to foster innovation, ensure that we are providing customers with better services while at the same time assessing the proper risks of this industry.”

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