WASHINGTON — Sen. Cynthia Lummis, R-Wyo., wants to create a new oversight body for emerging financial technologies that do not fall under the jurisdiction of existing regulators.
Speaking to the economist Paul Kupiec during a webinar for the American Enterprise Institute, Lummis said the new supervisory entity would be part of a broad-ranging bill on digital assets that she has co-authored with Sen. Kirsten Gillibrand, D-N.Y.
“There will be sort of this oversight entity that will be created to look at new technologies that don’t neatly fit within a certain regulatory framework that already exists, so we can continue to incorporate innovation in this space into our well understood regulatory framework,” Lummis said.
A final draft of the bipartisan bill, which was announced in March, will be released next week for a month-long public comment period before it is introduced in the Senate. Lummis said she and Gillibrand are opting to bring the bill to the public first in an effort to make it as encompassing as possible.
“We want everyone to use next week and the month thereafter to get us additional feedback to make sure that we’ve covered all the points that people feel are necessary to create regulatory clarity,” she said. “Among the most important components of that bill are definitions of the different kinds of assets that will help put them in different regulatory buckets and hopefully help clearly define not only who the regulator is, but what kind of reporting requirements might be necessary.”
The draft legislation has outlined multiple tracks for some assets, including stablecoins, Lummis said.
The topic of stablecoin configuration has taken on renewed importance following the collapse of TerraUSD last week. Unlike many issuers that aim to hold enough assets to peg their stablecoins to the U.S. dollar, Terra used an algorithm-based trading mechanism to maintain its value. That approach ultimately faltered in the face of a run on liquidity, causing the coin to fall to a fraction of a cent in just a few days.
Given the apparent risks involved with algorithmic stablecoins, Lummis said it was important to provide sound regulatory guidance to asset-backed coins to create a safe haven for investors. “It’s going to be very important that, for consumer protection, consumers turn to asset-backed stablecoins,” she said, adding that she and Gillibrand have identified methods for regulating stablecoins.
Lummis said one option is to treat issuers under the current framework for financial institutions and make them accountable to the Federal Deposit Insurance Corp. The other is to require them to fully back their coins with hard assets, a mandate that would subject them to similar scrutiny as exchange-traded funds, which are required to have their underlying assets verified by third-party groups.
Lummis such issues will be sorted out as the bill makes its way through the legislative process.
“It will be up to lawmakers to determine whether … more high-frequency monitoring is either required or is permissive,” she said. “So we’ll be working with Sen. [Pat] Toomey [R-Pa.] and Sen. Gillibrand and others who are interested in this topic to see what the appropriate legal standard is.”
Staff writer, American Banker