Stablecoin framework should support credit union involvement
When it comes to ways regulators can combat illicit finance in the digital assets sphere – addressing the most significant risks with thoughtful, innovative approaches that provide credit union parity is essential. In a letter sent Friday, Head of Regulatory Advocacy James Akin responded to Treasury's request for comment (RFC) on the issue with several recommendations.
The RFI is required by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law this summer. It outlines a regulatory framework for stablecoins and gives federally chartered credit unions clear authority to serve as issuers and custodians of stablecoins once appropriate regulations are implemented.
“As Treasury develops the regulatory regime for payment stablecoins under the GENIUS Act, we believe it is crucial that the framework not be one-size-fits-all in a way that only the very largest institutions can participate,” Akin wrote, adding that the spirit of the legislation to encourage innovation “should extend to allowing diverse financial institutions, including credit unions, to issue or utilize stablecoins in a safe manner.”
The most significant illicit finance risks in the digital asset ecosystem include the use of anonymous or non-compliant exchanges, the abuse of mixers and other obfuscation tools to hide transaction trails, ransomware and cybercrime proceeds being laundered through crypto, and fraud schemes targeting consumers, Akin added.
To combat these risks, America’s Credit Unions recommends that regulators:
Facilitate standardized, secure API frameworks that vendors can build into compliance products. Promotion of APIs should remain technology-neutral and not become an implicit mandate;
- Avoid prescriptive requirements that every institution must deploy AI, and instead encourage a risk-based approach;
- Provide support through Treasury for initiatives to develop interoperable and privacy-preserving digital identity frameworks. Regulations should encourage the use of reliable digital ID for crypto transactions but should not impose a single solution;
- Clarify so credit unions know how examiners will view the use or non-use of blockchain analytics tools;
- Calibrate regulatory requirements for stablecoin issuers based on the nature of the stablecoin and the risks it presents, not simply on the charter of the institution.
Beyond the four categories contemplated in the RFC, Treasury should consider other new developments like privacy-enhancing cryptographic tools, cloud-based AML solutions, and smart contract analysis for compliance.
Federal Reserve Governor Michael Barr addressed GENIUS Act implementation in a speech last week, noting that it provides “a helpful statutory framework, but it will be up to both the federal banking agencies and the states to coordinate and develop a comprehensive set of rules that can fill in important gaps and ensure that there are robust guardrails to protect users of stablecoins and mitigate broader risks to the financial system.”
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