Leading Republican House Financial Services Committee members have recently expressed deep concerns over actions taken by the Federal Reserve Board (Fed), which they believe undermine the progress made by Congress in establishing a regulatory framework for payment stablecoin. In a letter addressed to Fed Chairman Jerome Powell, Representatives Patrick McHenry, French Hill, and Bill Huizenga strongly criticized the Fed’s issuance of supervision and regulation letters, apprehensive that such actions could discourage financial institutions from participating in the digital asset ecosystem.

The House Financial Services Committee had previously made significant strides towards developing a comprehensive regulatory framework for stablecoins in the United States. However, the bill’s prospects of becoming law faced uncertainty after negotiations between congressional Democrats, Republicans, and the White House broke down last week.

The lawmakers emphasized their recognition of the need for regulatory certainty in the payment stablecoin sector and the broader digital asset ecosystem, aiming to safeguard consumers and instill confidence among market participants. This recognition stemmed from the widespread bipartisan support received by the Clarity for Payment Stablecoins Act from the House Committee on Financial Services.

Nevertheless, the release of the Fed’s supervision and regulation letters, known as SR 23-7 and SR 23-8, has raised concerns among the Republican lawmakers. According to their letter, SR 23-7 and SR 23-8 seem to contradict the Committee’s efforts by effectively preventing banks under the Fed’s purview from issuing payment stablecoins or engaging in the payment stablecoin ecosystem.

While the Fed’s supervisory no-objection process is portrayed as guidance that outlines permissible activities, the lawmakers argue that the Fed intends to prohibit such activities, especially those related to public, permissionless blockchains. They assert that the implementation of the Novel Activities Supervision Program under SR 23-7 adds burdensome regulations on banking institutions seeking to engage with crypto-assets. Combined with previous policy statements and decisions, this approach could potentially result in a de facto prohibition on banks interacting with the digital asset ecosystem.

Furthermore, the lawmakers highlight the fact that the issuance of SR 23-7 and SR 23-8 did not comply with the notice and comment process required by the Administrative Procedure Act. They argue that the Fed’s issuance of such guidance without being accountable to market participants and the public is unacceptable.

These concerns raised by leading Republican committee members bring to light the increasing tension between Congress and the Federal Reserve regarding the regulation of stablecoins and the broader digital asset industry. The response of the Federal Reserve to these objections and the potential for further dialogue and revisions to the supervision and regulation letters remain uncertain.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.