Lummis-Gillibrand Introduce Payment Stablecoin Regulatory Framework

US Senators Kirsten Gillibrand and Cynthia Lummis have proposed the Lummis-Gillibrand Payment Stablecoin Act, creating a regulatory framework for payment stablecoins. The bill prohibits unbacked stablecoins, mandates 1:1 reserves, and establishes state and federal oversight. It also aims to prevent illicit uses and support the dominance of the US dollar by promoting innovation and protecting consumers.

United States Senators Lummis and Gillibrand Introduce Comprehensive Regulatory Framework for Payment Stablecoins

Washington, D.C. (April 17, 2024) - In a significant move to address the rapidly evolving landscape of digital assets, United States Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) have introduced the Lummis-Gillibrand Payment Stablecoin Act of 2024. This landmark legislation establishes a comprehensive regulatory framework for payment stablecoins, providing much-needed clarity and safeguards for consumers, issuers, and the financial system as a whole.

"Passing a regulatory framework for stablecoins is absolutely critical to maintaining the U.S. dollar's dominance, promoting responsible innovation, protecting consumers, and cracking down on money laundering and illicit finance," stated Senator Gillibrand. "To draft the strongest bill possible, our offices worked closely with relevant federal and state agencies, and we are confident that this legislation can earn the necessary support in the Senate and the House."

Key Provisions of the Lummis-Gillibrand Payment Stablecoin Act:

1. Prohibition of Unbacked, Algorithmic Stablecoins:

   • The bill explicitly prohibits any payment stablecoin from being backed by non-cash assets or algorithmic mechanisms, effectively barring the issuance of unbacked stablecoins like TerraUSD (UST).

2. One-to-One Reserve Requirements:

   • Issuers of payment stablecoins must maintain a reserve equal to or exceeding the value of outstanding stablecoins in U.S. dollars or other "permissible assets."

3. State and Federal Regulatory Regimes:

   • The bill establishes a dual regulatory regime, with the Office of the Comptroller of the Currency (OCC) overseeing payment stablecoin issuers operating under a federal charter and state regulators supervising those with a state charter.

4. Prevention of Illicit Uses:

   • The legislation imposes strict anti-money laundering and illicit finance requirements on payment stablecoin issuers, including Know-Your-Customer (KYC) and Anti-Money Laundering (AML) compliance measures.

Additional Details from the Bill:

1. Issuance Authority:

   • State non-depository trust companies may issue payment stablecoins up to $10 billion, while authorized institutions (such as banks and credit unions) may issue stablecoins "up to any amount" under a limited-purpose state charter.

2. Custody Requirements:

   • The bill emphasizes the importance of proper custody practices for issuers, especially in light of the recent FTX scandal. Stablecoin issuers must maintain custody arrangements that prevent the unauthorized use or loss of reserves.

3. Implications for Tether:

   • The Lummis-Gillibrand Payment Stablecoin Act could have significant implications for Tether, the largest stablecoin issuer by market capitalization. The bill's one-to-one reserve requirement and anti-money laundering provisions may force Tether to disclose the composition of its reserves and improve its compliance measures.

4. Congressional Support:

   • The legislation has received bipartisan support from key lawmakers, including Senate Banking Committee Chairman Sherrod Brown (D-OH), who has expressed his willingness to support a stablecoin bill that addresses his concerns.

5. Next Steps:

   • The Lummis-Gillibrand Payment Stablecoin Act will now be referred to the Senate Banking Committee for review and debate. The committee will hold hearings to gather input from stakeholders and experts before making recommendations to the full Senate.

Conclusion:

The Lummis-Gillibrand Payment Stablecoin Act of 2024 represents a pivotal step in the development of a robust regulatory framework for payment stablecoins in the United States. This legislation balances the need for consumer protection, financial stability, and responsible innovation, creating a path forward for the safe and sound evolution of digital assets in the 21st century.