Sen. Bill Hagerty (R-Tenn.) released a discussion draft of a new bill aimed at providing a clear regulatory framework for stablecoin issuers.
Hagerty, a member of the Senate Banking Committee, aims to remove regulatory uncertainty and maximize the potential of stablecoins in strengthening payment systems and supporting U.S. Treasury needs. .
Hagerty said in a statement:
“Stablecoins have the potential to not only strengthen trading and payment systems, but also help generate new demand for U.S. Treasuries to address unsustainable deficits.”
He said a lack of clear regulation is “hindering” the growth and “promise” of stablecoins in the U.S., and that his proposed bill would “unlock the full potential of this technology for the benefit of the American people.” The aim is to create the framework necessary to bring out the best in the world.
Main regulations
The bill builds on the Payment Transparency Stablecoins Act, introduced by House Financial Services Committee Chairman Patrick McHenry.
One of its notable provisions exempts stablecoin issuers with less than $10 billion in total assets from federal oversight and allows them to remain under state regulation. Issuers above the $10 billion threshold may request exemptions to continue operating under state regulations.
This law requires stablecoin issuers to maintain reserves on a one-to-one basis with the stablecoins they issue. These reserves should consist of high-quality assets such as U.S. currency, Treasury bills, or other safe financial instruments.
Issuers are required to publish the composition of these reserves on a monthly basis to ensure transparency and provide consumers with assurance that their stablecoins are fully backed. Furthermore, the development of interoperability standards for stablecoin transactions is also needed to facilitate seamless integration with other financial systems and international payment networks.
This law restricts the issuance of stablecoins to authorized entities called “authorized payment stablecoin issuers.” This includes insured depository institutions and approved non-bank entities that meet regulatory standards. Issuers must also establish procedures for timely redemption of stablecoins and maintain a public policy regarding redemptions.
The bill designates the Federal Reserve as the primary regulator of custodian stablecoin issuers. For nonbank issuers, the Office of the Comptroller of the Currency (OCC) serves as the primary regulator.
Both agencies oversee the compliance, risk management, and operational practices of these issuers to ensure they meet the required standards of safety and soundness.
consumer protection
The legislation also includes technical adjustments to strengthen state-based regulatory pathways, emphasizing consumer protection while fostering innovation. It aims to support innovation within the stablecoin space by providing clear legal guidelines, reducing regulatory barriers and creating a tailored approach to supervision.
The law encourages cooperation between state and federal regulators and allows state-regulated issuers to operate within federal guidelines under certain conditions. It also includes provisions for reciprocal agreements with foreign jurisdictions that have substantially similar stablecoin regulatory regimes to facilitate international trade.
The bill would require stablecoin issuers to segregate customer assets to ensure that stablecoins, private keys, and other customer-owned assets are not commingled with the issuer's own assets. This prevents the misuse of customer funds and protects them even in the event of issuer bankruptcy or financial distress.
The law explicitly prohibits issuers from rehypothesizing (repurposing) retained customer assets, except in strictly controlled circumstances for liquidity purposes. This ensures that the reserves backing the stablecoin remain safe and available for redemption, further protecting consumer interests.
Entities that provide safekeeping or custodial services for stablecoins and private keys must comply with strict requirements to ensure the safety of consumer assets. Customer assets must be treated as customer property and protected from the issuer's creditors, ensuring that these assets remain safe even if the custodian faces financial problems.
The initiative aims to strike a balance between accelerating the adoption of stablecoins and protecting financial stability, and is an important step toward integrating digital assets into the broader financial system.
mentioned in this article
