U.S. Congressman Warren Davidson has penned a letter to Securities and Exchange Commission (SEC) chair Gary Gensler, inquiring whether stablecoin issuers that hold money transmission licenses could be exempt from securities regulations.
In a letter seeking clarity from the head of the SEC, Davidson and his co-signatories say there is a need for the regulator to spell out the legal position more clearly in order to avoid stifling innovation and suppressing investment in the sectors.
The letter also raises specific legal questions about the SEC’s analysis of prior relevant case law, which it suggests may have been misconstrued by the commission in drafting its approach to regulating all stablecoins and yield products as securities.
The distinction is crucial in determining whether the SEC has the authority of enforcement in these instances and whether firms issuing these products need to be regulated under federal securities laws.
“It is important that the Commission provide clarity regarding the SEC’s position to avoid innovation-dampening uncertainty and opacity within these markets, which would likely harm to the very investors the SEC is tasked with protecting.”
The letter is co-signed by Congressmen Tom Emmer, Ted Budd, Trey Hollingsworth, and Anthony Gonzalez.
The #crypto industry deserves regulatory clarity when it comes to yield products and #stablecoins. I’m glad to be joined by @RepTomEmmer, @RepTedBudd, @RepAGonzalez & @RepTrey in requesting this clarity from SEC so that innovation can thrive in the USA. pic.twitter.com/8uRR4CnDYC
— Warren Davidson 🇺🇸 (@WarrenDavidson) October 28, 2021
In it, the authors question the regulator on its interpretation of available case law around “asset-backed stablecoins and yield products offered by regulated cryptocurrency markets,” citing past cases Marine Bank and Reves.
In particular, they say that the judgements in each of these cases including as an important element of analyzing when securities laws apply “whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary.”
The letter argues that while some stablecoins and yield products are offered by unregulated entities, those offered by banks, trust companies and other regulated ‘bank-like’ institutions may not qualify as securities under existing U.S. case law, because they are already governed by banking and other related regulatory regimes.
The lawmakers note that while unregulated providers could see their instruments designated securities, those issued by regulated parties should not fall under the remit of federal securities laws and consequently would not be a matter for the Securities and Exchange Commission.
Further probing the matter, the letter sets out three questions for Gensler and the securities regulator to address by return:
- “What types of bank or bank-like regulation (i.e., state money transmission licensing, state trust charter, state banking order or federal charter) would, under Reves, generally obviate the need to apply securities laws when regulated parties issue stablecoins or yield products?”
- “What aspects of those regulations (i.e., minimum capitalization, permissible investment standards, and examinations) are sufficient in protecting investors when regulated parties issue stablecoins or yield products?”
- “Conversely, what aspects of the existing regulatory regimes are insufficient to protect investors, if any?”
The letter is the latest appeal from U.S. lawmakers to the SEC in the ongoing debate about the best shape for digital currency and stablecoin regulation in the country. Specifically, discussions over recent months have centred on which agencies have the authority to regulate which activities within the digital asset space and where the boundaries of responsibility for regulators like the SEC lie.
The congressmen have suggested that the need for greater clarity around the law as it stands in the U.S. is pressing, in light of uncertainty’s dampening effect on investment and innovation in and around the sector.
It comes as SEC chief Gensler has promised to take a fresh look at the regulation of stablecoins in the U.S., with the SEC ostensibly favoring a broader definition of security than the letter’s signatories.
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