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Patrick McHenry pushes stablecoin legislation as US narrowly avoids shutdown

U.S. House Financial Services Committee Chair Patrick McHenry (R-NC) reemphasized his determination to pass stablecoin regulation in a Zoom meeting on Friday organized by stablecoin issuer Circle.

“Things are complicated right now,” said McHenry, in reference to the threat of a government shutdown orchestrated by the Republican party, of which he is a member.

Republicans in the House, fueled by hard-right demands for cuts, forced a confrontation over federal spending, leading to fears of a shutdown if Congress failed to pass funding legislation by October 1, when the previous funding expired.

In the end, this eventuality was narrowly avoided. In the 11th hour, the House and Senate agreed on a short-term deal, ensuring funding until November 17 and avoiding a federal shutdown. It was signed into law by President Joe Biden minutes before the deadline.

With disaster averted, temporarily at least, McHenry’s promise to have his stablecoin bill in front of Biden carries more weight.

The bill

The so-called Clarity for Payment Stablecoins Act of 2023 was authored by McHenry and, if enacted, the legislation would create a regulatory framework for the issuance and oversight of payment stablecoins, the main proposals being:

– Defining stablecoins and establishing a clear regulatory framework for their issuance and operation;
– Stablecoin issuers must obtain licenses from state regulators and ensure compliance with their relevant rules, as well as calling for supervision and reporting requirements for stablecoin issuers;
– Issuers must maintain reserves equal to the value of the stablecoins in circulation, held in a manner that ensures the stability and liquidity of the stablecoin;
– Consumer protections requiring stablecoin issuers to disclose relevant information about the stablecoin, including its underlying assets, reserve holdings, and any potential risks, as well as establishing a mechanisms for resolving disputes and addressing consumer complaints;
– Stablecoin issuers must implement robust AML and KYC procedures;
– And the need for coordination with international regulatory bodies and standards to ensure consistency in the global stablecoin ecosystem.

“The bill protects consumers by establishing necessary federal guardrails, while at the same time fostering innovation in the U.S. through a tailored approach for new entrants into the marketplace,” said McHenry.

The Stablecoin Bill was debated in a markup session of the House Financial Services Committee in July. Despite objections from Democrats, it was advanced (with a few Democrats in support) to a full House floor vote.

The main point of contention about the bill was the power given to states and the lack of involvement of the Federal Reserve.

Committee ranking member Maxine Waters (D-CA) criticized the bill for allowing state regulators to expand the list of suitable stablecoin reserve assets unilaterally based on what they deem “appropriate.”

“Strong reserves are what ensure a stablecoin remains stable,” argued Waters, who pointed out that delegating authority to state-level ‘payment stablecoin regulators’ meant that the bill lacked support from the Federal Reserve or the Treasury Department.

The bill would give the Fed the ability to intervene in undefined ‘exigent circumstances,’ but only after giving state regulators 48 hours’ notice.

Democrats also took issue with the possibility that the bill could allow private corporations to issue their own tokens.

Despite Democratic objections and the fact that this version of the stablecoin bill does not have support from the White House, Treasury, or Federal Reserve and still needs to be voted on in a full House session, McHenry was keen to point out that it does have bipartisan support.

McHenry noted on Friday that “more than a handful” of Democrats supported the bill when it was produced in July, and that he’d had “conversations with really smart senators on both sides of the aisle.”

In terms of when the bill gets its full House vote, McHenry was keen to dampen expectations of any version of the stablecoin Act coming into force soon, saying “Obviously, Congress is traditionally slower than any human being would want.”

Watch: Bridging digital money and traditional banking

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