Fed Report’s regulatory overhaul designates Stablecoins as systemically risky

By Sunil Sharma
September 20, 2021 Updated September 20, 2021
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Image Courtesy of Reuters/Yuri Gripas

The upcoming CBDC report by the Treasury, the Fed, and other financial regulators will reportedly focus on imposing stricter regulations on stablecoins in lieu of an underlying and undetected risk factor. According to the New York Times, the Financial Stability Oversight Council holds the power to designate stablecoins as, systemically risky financial system, which in turn allows the regulators to close in on them with stricter policies.

The upcoming report could battle the “small market” stablecoins argument with the Dodd-Frank Act which permits the regulators to impose laws on financial activities that pose a potential threat to the system in foreseeable future.

Stablecoins as securities

Chairman Gensler’s controversial securities comments against stablecoins may also be incorporated in the report. Gensler recently asserted that stablecoins “may well be securities,” to facilitate broader regulatory oversight. Reportedly, this could come to life and stablecoins could be marked as securities, which will further enforce the market to register with regulators and give up anonymity.

Gensler’s claims about flagging majority digital assets as securities, arguing that the crypto industry’s democratic and transparency guarantees are false claims. “It’s a highly speculative asset class,”, said Gensler, adding that the need for regulatory action is inevitable. Gensler has also speculated against the trending Coinbase Vs SEC controversy, stating the exchange has been unable to register “even though they have dozens of tokens that may be securities.”

Stablecoins Deposit in Banks

Another point added to the regulatory policy framework of stablecoins is that they might be treated as if they were banks. As more institutions demand banks to launch crypto custody services, regulators could also establish stablecoins as bank deposits. This will reduce the risk factor as bank regulators will be responsible for oversight of deposited stablecoins, and will further manage any are sudden fluctuations to protect investors.

“If that were to happen, the tokens could become subject to oversight by a bank regulator, such as the Office of the Comptroller of Currency, Mr. Gelzinis said. They could also potentially benefit from deposit insurance, which would protect individuals if the company backing the stablecoin went belly up.”

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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