April 09, 2024

Warren Urges House Financial Services Committee to Protect Consumers, Financial Stability, and National Security As They Consider Stablecoin Regulations

"As Congress continues to deliberate over the appropriate regulatory framework for stablecoins, policymakers should be weary of efforts to integrate stablecoins into the formal banking system – or extend any of the concomitant safety net protections to stablecoin issuers – without strong rules that ensure safety and soundness, respect the bedrock principle of “same risk, same activity, same regulation,” and mitigate risks to consumers, financial stability, and our national security” 

“[E]fforts to create new regulatory frameworks around the $157 billion stablecoin market, including those that aim to fold stablecoins deeper into the banking sector, could amplify and entrench these risks rather than mitigate them.”

Text of Letter (PDF) 

Washington, D.C. – Senator Elizabeth Warren (D-Mass.) wrote to the House Financial Services Committee Chair Patrick McHenry (R-N.C.) and Ranking Member Maxine Waters (D-Calif.) urging them to include strong rules that protect consumers, financial stability, and our national security in any upcoming legislation related to stablecoins. The Committee’s work to develop a stablecoin regulatory framework comes as the crypto industry was on track to spend record amounts on lobbying last year.

Stablecoins are a type of cryptocurrency designed to maintain a stable value, often by pegging the value of the coin to a specific currency, asset, or pool of assets. Supporters believe these cryptocurrencies could become widely used by households and businesses as a form of payment, but research shows that to date, stablecoins are rarely used for payments outside of the crypto market. Instead, stablecoins have mainly been used to facilitate speculative trading in cryptocurrencies. 

Despite their limited use outside of the crypto world, stablecoins have become increasingly intertwined in our traditional financial system. One clear example of this was when USDC lost its 1:1 peg to the U.S. dollar during the March 2023 banking crisis following reports that USDC’s issuer, Circle, had $3.3 billion in cash reserves stuck at Silicon Valley Bank. Circle was the primary beneficiary of the  federal government’s move to backstop Silicon Valley Bank’s uninsured deposits in order to prevent greater financial devastation. 

Stablecoins also pose risks to our national security. Stablecoins are now the most common crypto currency associated with crypto scams and crypto transactions to and from sanctioned entities, overtaking Bitcoin. Groups dealing in illicit transactions have an incentive to use stablecoins because they face difficulties accessing the U.S. dollar through traditional means, but still want to benefit from its stability. A recent Treasury report highlighted that “ISIS and other terrorist groups have moved towards using stablecoins, including Tether, to move or store funds.”

Public, permissionless blockchains also pose a great risk to integrating stablecoins into the banking system. Most stablecoins are issued over public networks where no prior approval is needed to participate in stablecoin transactions. The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have recognized the risks of public blockchain networks. 

Senator Warren has been an outspoken advocate for regulation and oversight of crypto to rein in unchecked illegal activity, and protect consumers and the safety and stability of the financial system:

  • In October 2023, Senators Warren and Marshall and Representative Sean Casten (D-Ill.) led 102 lawmakers in a bipartisan letter to National Security Advisor Jake Sullivan and Brian Nelson, Under Secretary for Terrorism and Financial Intelligence at the Department of the Treasury raising grave concerns about reports that in the months leading up to their brutal October 7th terrorist attack on Israel, Hamas and Palestinian Islamic Jihad raised millions of dollars via crypto, evading U.S. sanctions to fund their operations.

  • In October 2023, at a hearing of the Senate Armed Services Committee, Senator Warren spoke about the need to crack down threats posed by crypto, noting that half of North Korea’s missile program is paid for through crypto crime.

  • In September 2023, Senators Warren, Marshall, Manchin, and Lindsey Graham (R-S.C.) announced an expanded coalition of Senate support for their bipartisan Digital Asset Anti-Money Laundering Act, announcing 11 new cosponsors of their legislation – Senators Peters, Dick Durbin (D-Ill.), Chair of the Senate Judiciary Committee, Smith, King, Shaheen, Bob Casey (D-Pa.), Blumenthal, Bennet, Cortez Masto, Fetterman, and Whitehouse.

  • On August 4, 2023, Senators Warren, Tim Kaine (D-Va.), and Chris Van Hollen sent a letter to Brian Nelson, Under Secretary for Terrorism and Financial Intelligence at the U.S. Department of the Treasury and National Security Advisor Jake Sullivan, expressing concerns about North Korea’s use of crypto to circumvent international sanctions and fund its illegal weapons programs.

  • On July 21, 2023, at a hearing, Senator Warren warned about the national security risks of rogue states using crypto to evade sanctions and fund their weapons programs, spying, and cyberattacks – calling out North Korea for stealing over $3 billion in crypto over the past 5 years, and using proceeds to fund its illegal nuclear weapons program.

  • On June 8, 2023, Senators Warren and Van Hollen sent a letter to Attorney General Merrick Garland asking the Department of Justice (DOJ) to investigate the crypto exchanges Binance and Binance.US for potentially making a series of false statements to Congress.

  • In May 2023, a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out crypto’s role in fueling the fentanyl crisis and announced she will reintroduce her bipartisan Digital Asset Anti-Money Laundering Act, a bill that would close loopholes in anti-money laundering rules, cutting off drug suppliers and cartels from using crypto to facilitate their illegal business. 

  • In May 2023, at a hearing of the Senate Armed Services Committee, Senator Warren questioned senior intelligence officials about crypto’s threats to national security as the method of choice for countries to evade sanctions and fund weapons programs, support spying, and promote cyber attacks.

  • In February 2023, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren raised concerns that key parts of the crypto industry are not subject to the same money laundering laws that cover other financial organizations, allowing financial criminals to use crypto to launder billions. 

  • On December 14, 2022, Senators Warren and Roger Marshall (R-Kan.) introduced the Digital Asset Anti-Money Laundering Act of 2022, bipartisan legislation that would mitigate the risks that cryptocurrency and other digital assets pose to the United States’s national security by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework and bring the digital asset ecosystem into greater compliance with the rules that govern the rest of the financial system.

  • On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators to raise concerns about the ties between the banking industry and crypto firms. 

  • On December 6, 2022, Senators Warren, Marshall, and John Kennedy (R-La.) wrote to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds.

  • On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to keep crypto out of the banking system following FTX’s collapse.

  • On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse. 

  • On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities. 

  • On November 17, 2022, Senator Warren, along with Senator Dick Durbin (D-Ill.), sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.

  • In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market.

  • In July 2022, Senator Warren and her colleagues released the findings from an investigation into seven large cryptomining companies – showing extraordinarily high energy use and climate impacts from cryptomining – and called on the EPA and DOE to take action.

  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.

  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.

  • In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.

  • In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins. 

  • In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system. 

  • In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.

  • In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present. 

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