FSOC Calls for Congress to Regulate Stablecoins

The Financial Services Oversight Council in the United States has pressed the legislature to establish some standards for the issuance of stablecoins. 

The FSOC in its report dated December 06, 2024 stated that stablecoins may evolve as a bigger danger to the financial system of the US. The council claimed that uniformly issued stablecoins are prone to “runs” if firms do not control the risks attached to these coins.

According to the report “Stablecoin continue to represent a potential risk to financial stability because they are acutely vulnerable to runs in absence of appropriate risk management standards.”

One of the primary problems is the large percentage of total supply of stablecoins issued by Tether, which stands at about 70%.

While the FSOC did not specify certain entities, it highlighted that some stablecoin companies do not have proper risk control principles in place. Recently, Tether has been publicly criticized for failing to show any evidence that the coins it issued would be valued at one USD or its equivalent in other assets.

The report further stressed that many stablecoin issuers are not regulated by the federal government. Some are only under state-level supervision, and many companies offer limited information about their reserves. 

The FSOC went on to tell Congress that it should set in place a detailed federal framework that would guide the regulation of activities of stablecoin issuers and empower the federal agency to have regulatory jurisdiction over the crypto market.

This is not the first time the FSOC has pushed for legislation. It made similar recommendations in the previous annual reports of 2023. US lawmakers are presently considering the Payment Stablecoins Act which is intended to regulate stablecoin issuers. Though the bill is yet to be enacted, advocates of the bill believe that it will be enacted during the succeeding U.S. administration.