{"id":4656,"date":"2022-04-25T20:11:02","date_gmt":"2022-04-26T01:11:02","guid":{"rendered":"https:\/\/blogs.luc.edu\/compliance\/?p=4656"},"modified":"2022-04-25T20:11:02","modified_gmt":"2022-04-26T01:11:02","slug":"stablecoins-iii-the-stablecoin-trust-act-of-2022","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=4656","title":{"rendered":"Stablecoins III: The Stablecoin TRUST Act of 2022"},"content":{"rendered":"

Todd Deger<\/em><\/p>\n

Associate Editor<\/em><\/p>\n

Loyola University Chicago School of Law, JD 2023<\/em><\/p>\n

On Wednesday, April 6, 2022, Senator Pat Toomey of Virginia released a discussion draft of the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022<\/a>, also known as the Stablecoin TRUST Act (\u201cthe TRUST Act\u201d). This new legislation, introduced in the United States Senate, aims to create a three-pronged regulatory framework for the issuers of stablecoins in the United States. Like similar bills on the topic of stablecoin, such as the Stablecoin Innovation and Protection Act of 2022<\/a>, the bill is short at only fourteen pages long. Where the bills differ is immediately noted in the more robust definitions section of the TRUST Act which lays out a six-part definition of \u201cpayment stablecoins\u201d that covers the design intent of a stablecoin, who can issue a stablecoin, whether the holder can inherently earn interest, and where the stablecoin transactions are recorded.<\/p>\n

Background and guiding principles<\/strong><\/p>\n

In December 2021, Senator Toomey released a set of guiding principles<\/a> on which he aimed to lay the framework for what would become the Stablecoin TRUST Act of 2022. Senator Toomey believes that stablecoins offer benefits including greater transaction speeds, lower payment costs, greater access to the payment system, and programmability within that system. \u201cA regulatory framework should follow from legislation. The legislation should address consumer protection and financial system risks<\/a>, but it should also be designed to promote innovation in the rapidly evolving global digital economy.\u201d<\/p>\n

With a balance of consumer protection and freedom<\/a> for economic innovation in mind, the TRUST Act was written.<\/p>\n

New definition of stablecoin<\/strong><\/p>\n

Under the TRUST Act<\/a>, a payment stablecoin is a convertible virtual currency that is designed to maintain a stable value relative to a fiat currency<\/a>, such as the U.S. dollar, and is then directly convertible to fiat currency by the issuer of the stablecoin. A payment stablecoin must be designed to be widely used for the purposes of exchange, is issued by a centralized entity, and does not inherently pay interest to the holder of the stablecoin. Additionally, the payment stablecoin must be recorded on a publicly distributed ledger<\/a>.<\/p>\n

The TRUST Act<\/a> first designates it to be unlawful for any person to issue a payment stablecoin, but carves out three exceptions<\/a>. First, the bill establishes a new federal license designed specifically for the issuers of stablecoin. Second, it preserves the state-registered money transmitter status for most of the existing stablecoin issuers in the United States. And, third, it clarifies that insured depository institutions, such as most commercial banks, are permitted to issue stablecoins.<\/p>\n

Requirements for stablecoin issuers<\/strong><\/p>\n

The TRUST Act aims to protect consumers by creating a rigorous reporting and disclosure framework<\/a> for all institutions issuing stablecoins, regardless of their status as a state money transmitter or if they are receiving the new federal license. All issuers are now required to disclose the reserve assets backing their stablecoin, release clear redemption policies for their stablecoin, and be subject to routine audits by registered public accounting firms.<\/p>\n

This sort of regulatory framework could be instrumental not only in providing actual protection to consumers and stablecoin users, but by also providing the much-needed image of safety and stability in the cryptocurrency world. This is accomplished through the establishment of stablecoin reserves.<\/p>\n

The TRUST Act requires payment stablecoins to be backed with assets that have a market value equal to one hundred percent or more of the value of the stablecoins themselves and those assets must be cash or cash equivalents. The assets may additionally be in the form of level 1 high-quality liquid assets<\/a> denominated in United States dollars.<\/p>\n

A small clash with the SEC<\/strong><\/p>\n

Senator Toomey\u2019s proposal provides an end to at least one debate within the stablecoin arena: stablecoins that do not offer interest are not securities<\/a>. With this definitional statement, Senator Toomey rejects the SEC\u2019s approach of regulating stablecoin through their own actions by considering them securities for purposes of enforcement.<\/p>\n

The aim of the TRUST Act is not to remove agency regulation, rather it is to put regulatory practices into federal legislation. Multiple U.S. departments and agencies have been keeping an eye on cryptocurrencies and stablecoins specifically, including the SEC<\/a>, the Department of the Treasury<\/a>, the IRS<\/a>, and the Commodity Futures Trading Commission<\/a>. By creating this sort of legislation, Senator Toomey is bringing stablecoins squarely under control of the Office of the Comptroller of the Currency and avoiding any regulatory in-fighting between different agencies.<\/p>\n

Things are still uncertain<\/strong><\/p>\n

As of now, there are competing regulatory frameworks for stablecoins. The Stablecoin Innovation and Protection Act of 2022<\/a>, introduced in the House of Representatives, and the Stablecoin TRUST Act of 2022<\/a>, introduced in the Senate, are only two of many futures for stablecoins in the United States. While there are certainly nuanced differences between the bills (one has \u201ccollateral requirements\u201d and the other requires \u201cstablecoin reserves\u201d), the similarities between the bills reflect Senator Toomey\u2019s intent<\/a> to allow stablecoins to be \u201cinteroperable with the current financial system” and \u201ccontinue America\u2019s longstanding tradition of fostering technological innovation\u2014not stifling it.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

On Wednesday, April 6, 2022, Senator Pat Toomey of Virginia released a discussion draft of the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022, also known as the Stablecoin TRUST Act (\u201cthe TRUST Act\u201d). This new legislation, introduced in the United States Senate, aims to create a three-pronged regulatory framework for the issuers of stablecoins in the United States. Like similar bills on the topic of stablecoin, such as the Stablecoin Innovation and Protection Act of 2022, the bill is short at only fourteen pages long. Where the bills differ is immediately noted in the more robust definitions section of the TRUST Act which lays out a six-part definition of \u201cpayment stablecoins\u201d that covers the design intent of a stablecoin, who can issue a stablecoin, whether the holder can inherently earn interest, and where the stablecoin transactions are recorded.<\/p>\n","protected":false},"author":100,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26],"tags":[545,547,548,851,914,1205,1236,1788],"class_list":["post-4656","post","type-post","status-publish","format-standard","hentry","category-finance-banking","tag-crypto","tag-cryptocurrency","tag-cryptocurrency-regulation","tag-finance","tag-ftc","tag-journal-of-regulatory-compliance","tag-legislation","tag-sec"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/4656","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/100"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4656"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/4656\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}