Experts Warn of Tighter Policing Ahead for Stablecoins

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It appears that regulatory strife may well be in store for stablecoins, with experts opining that fiat-pegged tokens could fall under the scrutiny of financial policymakers.

Quoted in the Financial Times, John Salmon, the head of the legal firm Hogan Lovells’ blockchain and cryptocurrency division, opined:

“All of [the variations of stablecoins], to me, are just shadow banking which should have been regulated .[…] as part of the banking system.”

According to him, there is this long history of new entrants into the financial sector using a technological edge to offer a variation on bank money and to avoid regulation in the short term as a bank so that they can establish market share.

Indeed, the regulatory push may not be a uniquely American phenomenon.

The same media outlet quoted Linklaters lawyer Harry Eddis as opining: “If a stablecoin falls into the unregulated or e-money category, a lot of regulatory oversight and conduct rules fall away. That’s why you’re seeing a lot of regulators wanting to assert regulation.”

Aside from American politicians, the European Commission and the British Treasury have both spoken of the need for increased levels of regulation in the sector and what Eddis agreed was the legal “ambiguity surrounding the status of stablecoins.”

The co-authors of the American draft bill, including Representatives Rashida Tlaib and Stephen Lynch, have claimed that stablecoins “represent a growing source of the market, liquidity and credit risk.”

Furthermore, experts called for more unity and transparency from existing stablecoin players, such as Tether, the operator of the USDT token. One expert was quoted as calling it “preposterous” that the firm had offered such “scant details” about the nature of the billions of dollars worth of “assets” it claims underpin its tokens. (Learn more: Tether Reveals Its Reserves Breakdown For The First Time)

“We welcome regulators’ recognition of the role of stablecoins in the global economy, and their consideration of financial technology innovation in the digital token space,” Stuart Hoegner, General Counsel at Tether, told Our, without elaborating.

Stablecoins are likely to fall under a heightened level of scrutiny if Facebook and its Diem partners get their way: The social media giant and the rest of its Diem stakeholders are looking to begin pilots on a USD-pegged stablecoin project of their own in conjunction with Silvergate, which holds chartered bank status in the USA. The project is a scaled-back version of the tech behemoth’s once-grand Libra global stablecoin plans.

But there were more words of caution from Jonathan Knegtel, co-founder and CEO of the blockchain analyst Blockdata, who told the FT,

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