Welcome to another edition of the Veriscope Regulatory Recap that focuses on some crucial regulatory developments and their potential effect on the ecosystem. This week, we cover the US setting its regulatory crosshairs on stablecoins, the IMF renewing calls for regulating crypto by citing the FTX collapse and turmoil in the banking sector, an SEC Commissioner blasting the agency's heavy-handed approach toward the crypto industry, and India's Finance Minister calling for globally coordinated crypto regulation at G20 meetings.
Since the FTX debacle, the United States has gone into an overdrive mode to regulate cryptocurrencies, with industry stakeholders raising the alarm and terming the government’s action “Operation Chokehold 2.0.” And now, its focus is on stablecoins.
A recent regulatory draft proposal detailed provisions stating that insured depository institutions issuing stablecoins would be subject to oversight by corresponding regulatory authorities. The hearing on the proposed stablecoin bill is scheduled for 19 April.
If approved, non-bank institutions would come under Federal Reserve scrutiny, and foreign issuers would need to register to conduct business within the US.
However, approval of stablecoin issuance would depend on several factors, such as maintaining adequate reserves, including USD or Treasury bills.
The possible impact of this proposed regulation on the crypto ecosystem and users could be both positive and negative.
On the positive side, the increased transparency and oversight may foster trust and confidence in stablecoins, leading to broader adoption and utilization in various use cases, such as cross-border transactions and a store of value.
It could also help prevent fraudulent activities, protect investors, and contribute to a more stable financial system by reducing the likelihood of market manipulation and "black swan" events.
Conversely, the proposed regulations could have negative consequences, too, for crypto users and the ecosystem at large.
For instance, the stringent regulatory framework might push some companies to seek friendlier jurisdictions, leading to market fragmentation and creating challenges for global cooperation.
The regulations might even impose limitations on the privacy and autonomy of users, as increased monitoring and reporting requirements could affect the decentralization aspect that attracts many to cryptocurrencies in the first place.
The International Monetary Fund called for regulating digital assets and strict prudential requirements for stablecoin issuers in its “Global Financial Stability Report.”
The IMF believes there should be comprehensive and consistent regulation and supervision in the crypto-asset ecosystem.
The report emphasizes the failures of FTX and crypto-friendly banks, Silicon Valley Bank (SVB) and Signature Bank, as reasons to stress the need for adequate supervision and regulation.
However, these claims are unsubstantiated, as cryptocurrencies did not play a role in the banks' failures. In fact, the true causes for these failures lie elsewhere, which calls into question the rationale for increasing supervision and regulation specifically targeting the crypto industry, citing recent bank failures.
Hester Peirce, the Commissioner of the US Securities and Exchange Commission (SEC), criticized the agency for being too rigid in regulating new technologies and punishing entrepreneurs who try to innovate, including those in the crypto industry.
“Today's Commission tells entrepreneurs trying to do new things in our markets to come in and register. When entrepreneurs find they cannot, the Commission dismisses the possibility of making practical adjustments to our registration framework to help entrepreneurs register and instead rewards their good faith with an enforcement action. Today's Commission treats the notice-and-comment rulemaking process not as a conversation, but as a threat,” said Peirce.
She argued for the need to balance fostering innovation and protecting investors. Her comments come amid criticism of the SEC's slow guidance and enforcement actions regarding cryptocurrencies and related activities.
India's finance minister, Nirmala Sitharaman, attended G20 meetings in the US and urged for a globally coordinated approach to regulate crypto assets due to their potential to cause macroeconomic instability.
G20 members agree on the need for globally coordinated regulation of crypto assets to deal with related challenges, according to Sitharaman.
She added that under India's G20 presidency, a "synthesis paper" will be prepared on crypto assets following discussions between finance ministers and central bank governors from member countries.
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