Navigating US Cryptocurrency Regulations

Failure to pass legislation would send a “negative signal” to the market.

The introduction of a regulatory framework in the United States aimed at stablecoins could pave the way for long-promised financial innovation, but bipartisan support for such a move may prove impossible, Moody’s Investors Service warned in a new report. report.

The rating agency indicated that a US bill, which aims to create a regulatory framework for stablecoins, has been tabled.

Cash-Like Digital Assets

Among other things, it would require cash-like digital assets to be issued by either a bank or a registered non-bank company. It would also impose strict reserve requirements and a series of standards for disclosure, asset separation, insurance and redemption mechanisms.

In addition, the bill would impose a ban on the issuance of new non-currency-backed stablecoins, he noted.

“The passage of a bill regulating stablecoins would bring much-needed regulatory clarity to the US digital asset industry and could foster innovation and financial stability,” the report’s authors say.

In the current environment, the crypto sector has so far been difficult to standardize under the rules that apply to the traditional financial sector, as this type of asset does not clearly correspond to existing asset classes, a rated Moody’s.

“Enforcing existing financial regulations in the crypto industry has proven difficult at best,” he said. “In this regard, tailor-made regulatory frameworks are required to fill the gaps, clarify the legal status of these assets and avoid regulatory fragmentation within the sector. »

However, Moody’s said recent congressional hearings on the role of stablecoins, which were held by the U.S. House of Representatives Financial Services Committee, “revealed significant policy disagreements between the two parties that could make it difficult to achieve a bipartisan consensus on the bill”.

Failure to move forward with legislation that has been tabled, amid negotiations in Congress, “could send a negative signal to market participants and investors,” the report said, while some many other jurisdictions have recently begun moving forward with their own regulations.

In this regard, the European Union has just passed comprehensive legislation and the UK is finalizing its own reforms which include provisions relating to stablecoins, Moody’s said.

Additionally, Japan and Singapore now have stablecoin regulations, and Korea is working on a regulatory regime that is expected to come into effect in 2024.

“Against this backdrop, in the absence of new digital asset-specific legislation, the U.S. market could become comparatively less attractive to businesses and investors, as innovation typically does not thrive in uncertain regulatory environments,” said he declared.

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Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.