WASHINGTON — Federal regulators say that they urgently need more power from Congress to properly regulate stablecoins, a fast-growing type of cryptocurrency that they warn could result in bank runs, consumer abuse and payment snafus unless lawmakers act quickly, according to a report issued Monday by the Treasury Department.
The call for congressional action comes at a pivotal moment, as cryptocurrencies are exploding in growth with limited federal oversight in place to regulate them.
Stablecoins, which are ostensibly pegged to the value of a stable reserve asset like the dollar, have not always proved as securely backed as companies claim, which the Treasury report warns could pose significant problems for customers, investors and the overall financial system.
Some regulatory powers already exist, the report said, including the ability of the Securities and Exchange Commission and other federal agencies to police certain stablecoin issuers.
But after months of studying the growing risks presented by stablecoins, the leaders of the President’s Working Group on Financial Markets said they had identified regulatory gaps that legislators must address, essentially throwing the issue to Congress.
“The rapid growth of stablecoins increases the urgency of this work,” says the report, issued by the President’s Working Group, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
“Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy.”
More than $130 billion worth of stablecoins are in circulation, up from $28 billion in January. The cryptocurrencies are issued by a new breed of financial technology companies like Tether and Circle. They are not banks, at least so far, and they are not simply tech companies that sell online services. They operate as both and have few rules to guide them.
Regulators made clear Monday that they want a new law that forces these types of issuers to be subject to requirements like those of traditional banks and financial institutions. Such a designation would require an issuer to have adequate reserves to ensure it could meet demands by customers to cash out quickly, to avoid destabilizing runs.
But the working group has determined that such authority would have to come from an act of Congress and that it could not currently mandate standards for digital payments reliant on stablecoins. That lack of authority, the report said, makes these types of crypto-based transactions more vulnerable to “human errors, management failures or disruptions” that could result in consumers losing money, being victims of fraud or unable to access money.
Federal law also cannot now prevent retailers and other commercial companies from issuing their own stablecoins, potentially creating risky overlaps between commerce and banking.
“Stablecoins and stablecoin arrangements raise significant concerns from an investor protection and market integrity perspective,” the report says.
Matt Phillips contributed reporting.