U.S. Treasury Secretary Janet Yellen told lawmakers on Tuesday that the government's financial risk watchdogs want there to be a minimum level of federal oversight of stablecoin issuers – a system that sets universal compliance standards beyond what states like New York and Texas currently impose.
The council of financial regulators she leads "believes it's critical for there to be a federal regulatory floor that would apply to all states and that a federal regulator should have the ability to decide if a stablecoin issuer should be barred from issuing such an asset," Yellen said in testimony before the House Financial Services Committee.
That's been the primary sticking point of U.S. legislation on regulating stablecoins. Republicans have fought for more authority for state regulators while Democratic lawmakers and Yellen's Department of the Treasury have held the line on federal authority. Even given that rift, this committee had previously approved a stablecoin bill with some Democratic support, though that effort awaits a vote on the House floor.
Committee Chairman Patrick McHenry (R-N.C.) has been leading that legislative push, and he used his opening question for Yellen on Tuesday to raise the issue during a hearing focused on the work of the Financial Stability Oversight Council – a group made up of the heads of several U.S. financial agencies.
Yellen also addressed the U.S. Securities and Exchange Commission's proposal to further restrict how investment firms custody their client's assets, including their crypto holdings. The proposed rule, which is on the agency's agenda to complete this year, would require a wider range of client assets to be held with "qualified custodians," and it has drawn criticism from bankers, some lawmakers and even other regulators about its potential effects.
"We've had some concerns about how it would impact banks, and that's something I've had to discuss with the chairman," Yellen said in the hearing.
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The FSOC has warned Congress and the crypto industry that if lawmakers can't mandate new regulations for digital assets, the council may be forced to act on its own. That could include imposing Federal Reserve oversight on aspects of the industry.
