Senator Bill Hagerty (R-TN) unveiled a plan to discuss new legislation designed to provide a clear regulatory framework for stablecoin issuers.
Hagerty, a member of the Senate Banking Committee, aims to eliminate regulatory uncertainty and unlock the full potential of stablecoins to improve payment systems and support demand from the U.S. Treasury.
Hagerty said in a statement:
“Stablecoins have the potential to not only improve transactions and payment systems, but also help create new demand for U.S. Treasuries as we work to address our unsustainable deficit.”
He added that the lack of clear regulation has “hampered” the growth and “promise” of stablecoins in the United States, and that his proposed legislation aims to create the framework necessary to “unleash the full potential of this technology for the benefit of the Americans.
Key provisions
The bill builds on the Stable Payments Clarity 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, allowing them to remain subject to state regulatory regimes. Issuers above the $10 billion threshold can apply for a waiver to continue operating under state regulation.
The legislation requires stablecoin issuers to maintain reserves on an individual basis with the stablecoins they issue. These reserves must consist of high-quality assets such as U.S. currency, Treasury bills, or other secure financial instruments.
Issuers are required to publicly disclose the composition of these reserves monthly to ensure transparency and provide consumers with confidence that stablecoins are fully collateralized. Additionally, this requires the development of interoperability standards for stablecoin transactions to promote seamless integration with other international financial systems and payment networks.
The legislation restricts the issuance of stablecoins to licensed entities, labeled as “authorized payment stablecoin issuers.” This includes insured depository institutions and licensed non-bank entities that meet regulatory criteria. Issuers must also establish procedures for the timely redemption of stablecoins and maintain publicly available redemption policies.
The bill designates the Federal Reserve as the primary regulator for stablecoin issuers that are depository institutions. For non-bank issuers, the Office of the Comptroller of the Currency (OCC) will serve as the primary regulator.
Both agencies will oversee the compliance, risk management and operational practices of these issuers to ensure they meet required safety and soundness standards.
Consumer protection
The legislation also includes technical adjustments to strengthen the state regulatory process, emphasizing consumer protection while fostering innovation. It aims to support innovation in the stablecoin space by providing clear legal guidelines, reducing regulatory barriers and creating a tailored approach to supervision.
The legislation encourages cooperation between state and federal regulators, allowing state-regulated issuers to operate in accordance with federal guidelines under specific conditions. It also includes provisions for reciprocal agreements with foreign jurisdictions that have substantially similar stablecoin regulatory regimes to facilitate international transactions.
The bill requires stablecoin issuers to segregate customer assets, ensuring that stablecoins, private keys, and any other property belonging to the customer are not mixed with the issuer’s own assets. This prevents misuse of customer funds and protects them in the event of insolvency or financial difficulties of the issuer.
The legislation explicitly prohibits issuers from rehypothecating (reuse) customer assets held in reserve, except in tightly controlled circumstances for liquidity purposes. This ensures that the reserves supporting stablecoins remain secure and available for redemption, further protecting consumer interests.
Entities providing custody or safekeeping services for stablecoins or private keys must comply with strict requirements to ensure the security of consumers’ assets. They must treat and manage client assets as belonging to the client and protect them from the issuer’s creditors, ensuring that these assets remain safe even if the custodian faces financial difficulties.
This effort aims to strike a balance between encouraging stablecoin adoption and safeguarding financial stability, marking an important step toward integrating digital assets into the broader financial system.
