Enhanced regulatory oversight of stablecoins would be good for banks and the financial system, says Moody’s Investors Service.
In a research note, the rating agency said that a recent U.S. government report — from the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — calling for Congressional action to increase oversight of stablecoins would increase the safety and transparency of the digital assets, and limit risks to both the economy and financial stability.
Among other things, the report recommended the entities involved with stablecoins be subject to federal oversight, along with strong risk management policies and procedures.
“Without a national regulatory framework, including rules about disclosure and how assets/reserves backing stablecoins can be invested, there is no guarantee that stablecoins are indeed backed by the equivalent value in assets,” the report noted.
Additionally, Moody’s said the fledgling crypto-based financial system lacks the sort of regulation and risk management requirements that exist in the traditional financial sector to protect customers, limit illegal activities and control systemic risk.
Stepping up regulation of stablecoins and shrinking the gap with the traditional sector would be a positive for conventional banks, the report said.
“Oversight would reduce some of the competitive advantages that stablecoin providers currently have over banks because of the lack of stablecoin regulation,” Moody’s said.
“Additionally, such oversight would limit risks to financial stability and would enhance acceptance of digital currency payment systems, encouraging technology advances that would be credit positive to the broader economy if costs decline and speed of payments increases,” the report added.