Top US Financial Regulators Call for On-Chain Stablecoin KYC
US regulators’ parting shots keep on coming, which has “zero chance” of becoming an “enforceable rule of law any time soon.”
Top US financial regulators issued a statement calling for on-chain stablecoin KYC.
The latest statement came just a few days after the fiasco of FinCEN’s proposal to extend anti-money laundering (AML) regulation to non-custodial wallets, for which the regulator is now accepting public comments with a deadline of January 4.
Now, regulators are back with their AML rules which now target stablecoins. In a statement on Wednesday, the Treasury Department and other agencies said,
“[Stablecoins] should have the capability to obtain & verify the identity of all transacting parties, including for . . . unhosted wallets.”
The regulators want the stablecoin to be used in a way that manages risk and maintains the stability of the financial and monetary systems. Jake Chervinksy, General Counsel at Compound Finance said,
“There's exactly zero chance this becomes an enforceable rule of law any time soon. This is just more of Secretary Mnuchin's personal views coming out on pretty-looking stationery before his tenure ends.”
To be clear, the "stablecoin KYC" statement from the President's Working Group is not an active proposal to change US law.
It's just an "initial assessment" of "considerations" from a couple policymakers with dim views on crypto & not many days left in their tenure.
— Jake Chervinsky (@jchervinsky) December 23, 2020
The statement is released by the President’s Working Group on Financial Markets, whose members include the Federal Reserve, the heads of Treasury, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).
In its comprehensive statement, the group says that stablecoins may be securities, commodities, or derivatives, depending on the specific qualities of a particular asset.
And when these fiat-backed cryptos are used for retail payments and at a “significant scale” in the US, “the associated risks may require additional safeguards,” the regulators said.
The group further said that the backers of stablecoins should obtain and verify the identities of all parties involved in a transaction. Also, they need to have “strong reserve management” to handle large-scale redemption.
The members also acknowledged that stablecoins have the potential to enhance efficiency, lower costs, increase competition, and foster broader financial inclusion. Treasury Deputy Secretary Justin Muzinich said,
“The statement reflects a commitment to both promote the important benefits of innovation and to achieve critical objectives related to national security and financial stability. Regulators will continue to look closely at stablecoin arrangements, and look forward to a future dialogue on these issues.”