Senator Hagerty introduces new stablecoin regulations to increase demand for the US Treasury
Senator Bill Hagerty (R-TN) revealed a draft of new legislation aimed at providing a clear regulatory framework for stablecoin issuers.
Hagerty, a member of the Senate Banking Committee, intends to eliminate regulatory uncertainty and unleash the full potential of stablecoins in improving payment systems and supporting US Treasury demand.
In a statement, Hagerty stated:
“Stablecoins have the potential not only to enhance transactions and payment systems but also to help create new demand for US Treasuries as we work to address our unsustainable deficit.”
He noted that the lack of clear regulation has impeded the growth and potential of stablecoins in the US, and his proposed legislation aims to establish the necessary framework to unlock the technology’s full potential for the benefit of Americans.
Key provisions
The draft legislation expands on the Clarity for Payment Stablecoins Act introduced by House Financial Services Committee Chairman Patrick McHenry.
One notable provision exempts stablecoin issuers with less than $10 billion in total assets from federal oversight, allowing them to operate under state regulatory regimes. Issuers surpassing the $10 billion threshold may request a waiver to continue under state regulation.
The legislation requires stablecoin issuers to maintain reserves on a one-to-one basis with the stablecoins they issue, consisting of high-quality assets such as US currency, Treasury bills, or other secure financial instruments. Issuers must disclose the composition of these reserves monthly for transparency.
Furthermore, the legislation mandates the development of interoperability standards for stablecoin transactions to facilitate seamless integration with other financial systems and international payment networks.
Stablecoin issuance is restricted to approved entities known as “permitted payment stablecoin issuers,” including insured depository institutions and compliant nonbank entities. Issuers must establish redemption procedures and maintain publicly available redemption policies.
The Federal Reserve is designated as the primary regulator for depository institution stablecoin issuers, while the Office of the Comptroller of the Currency (OCC) serves as the primary regulator for nonbank issuers.
Both agencies will oversee compliance, risk management, and operational practices to ensure safety and soundness in accordance with established standards.
Consumer protection
The legislation includes technical adjustments to enhance state-based regulatory pathways, focusing on consumer protection and innovation. It encourages collaboration between state and federal regulators and offers provisions for reciprocity with foreign jurisdictions to facilitate international transactions.
Stablecoin issuers are required to segregate customer assets to prevent commingling with issuer assets, safeguarding customer funds in case of insolvency. The legislation also prohibits the rehypothecation of customer assets held in reserve without specific conditions for liquidity purposes.
Custodial entities must adhere to strict requirements to ensure the security of customer assets, treating and protecting them from the issuer’s creditors. These actions aim to balance stablecoin adoption with financial stability, promoting the integration of digital assets into the financial system.
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