Reportedly, after prolonged discussions and multiple votes, the McHenry Bill has finally been approved in the committee by a vote of 34 to 16. The House Financial Services Committee (HFSC) formally endorsed an updated version of Chairman Patrick McHenry's legislation, bringing the regulatory framework for payment stablecoins closer to enactment. The Payment Stablecoin Clarity Act's transparency.
Despite opposition from the Democratic Party threatening the successful enactment of the current form of the McHenry Bill, this legislation still represents the most significant progress in Congress authorizing a regulatory framework for stablecoins. Influential members of the HFSC express optimism that the year-long bipartisan effort toward stablecoin legislation will garner broad support and eventually be signed into law. The passage of the "Clarity for Payments Stablecoin Act of 2023" also reveals the regulatory trend in the United States.
Restrictions on Stablecoin Issuers
The McHenry Bill establishes requirements and privileges for entities eligible to lawfully issue payment stablecoins. If enacted, any entity issuing payment stablecoins other than those authorized will be considered illegal. The terms enforcing this prohibition do not have an effective date, potentially implying that any current payment stablecoin issuers could violate the law after the legislation is enacted.
The McHenry Bill will establish banking-like regulation and supervision for federally qualified non-bank payment stablecoin issuers. Banking-like requirements include capital, liquidity, and risk management requirements; customer privacy requirements following the Bank Secrecy Act and the Gramm-Leach-Bliley Act; certain activity limitations; as well as comprehensive supervision and enforcement powers. State regulatory authorities will have primary supervisory, review, and enforcement authority over state payment stablecoin issuers, while the Federal Reserve (FRB) will possess secondary backup enforcement authority in "emergency" situations.
Payment Stablecoins Not Considered Securities
The McHenry Bill will amend the 1940 Investment Advisers Act, the 1940 Investment Company Act, the 1933 Securities Act, the 1934 Securities Exchange Act, and the 1970 Securities Investor Protection Act to explicitly categorize payment stablecoins as not being securities. Unlike other proposed stablecoin legislations (such as former Senator Patrick Toomey's "Stablecoin Trust Act"), the McHenry Bill does not prohibit interest-bearing stablecoins from being considered payment stablecoins. This implies that payment stablecoin issuers may potentially offer interest to stablecoin holders without taking on risks, thereby violating federal securities laws.
Limitations on Payment Stablecoin Issuance Methods
An interesting implication of the McHenry Bill's defined terms is that stablecoins issued on private, permissioned blockchains may not fall under the definition of "payment stablecoin" and thus not be subject to the requirements or benefits of the act. Payment stablecoins are defined in the McHenry Bill as a form of "digital asset," while "digital asset" is defined as a tool recorded on a "cryptographically-secured distributed ledger." However, the definition of "distributed ledger" only refers to "public" ledgers.
It is currently unclear whether federal banking entities will support the issuance of payment stablecoins on public blockchains like Ethereum, which is the current standard for stablecoins. Although the McHenry Bill seems to aim at limiting federal banking entities' discretionary power to reject applications, it remains uncertain whether these entities will refuse to issue payment stablecoins based on a commonly-held conclusion that payment stablecoin activities are unsafe or unsound on public blockchains. Criticism of public blockchains by federal banking entities is increasing, with statements like "issuance... on open, public, and/or decentralized networks... is likely inconsistent with safe and sound banking practices."
From a positive perspective, clarifying regulatory boundaries is advantageous for the further development of stablecoins, infusing more "lifeblood" into the cryptocurrency industry's growth. In this light, it's positive for the cryptocurrency industry. For the stablecoin market, it's also a positive impetus. The bill mandates that reserves be composed of fiat currency, implying that cryptocurrency will have partially complied with the law on a legislative level. Projects based on real-world assets (RWA), centered around fiat currency and government bonds, can now be carried out legally and on a large scale, laying a solid foundation for widespread adoption in the cryptocurrency industry.
However, we must consider the stablecoin bill in the context of the cryptographic layout of sovereign nations. From this perspective, stablecoins and their related trajectories will become the main battleground for the integration of sovereign state finance and the cryptographic economy. From the "Clarity for Payments Stablecoin Act of 2023", we can clearly see positive signals for the cryptocurrency market and also the U.S. government's greater expectations for the cryptocurrency market.
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