Powell Endorses Fed's Stablecoin Regulations, Warsh Abstains

Federal Reserve Proposes New Stablecoin Regulations

The Federal Reserve has announced a new proposal requiring U.S. cryptocurrency companies to authenticate their stablecoin users to prevent money laundering. This regulation comes in the wake of the GENIUS Act, which legalized stablecoins pegged to the U.S. dollar last summer.

Former Fed Chair Jerome Powell reaffirmed his support for the proposal, while the current Chair, Kevin Warsh, abstained from voting without explanation. All other governors backed the proposed regulations, which are designed to strengthen customer identification processes by compelling firms to verify users’ identities against government-sanctioned lists.

The regulations will apply to “digital asset service providers,” encompassing all U.S. entities involved in crypto transactions. These providers must collect personal data from users, including names, birthdates, and addresses, to mitigate the risk of facilitating illicit activities.

Despite the support for the proposal, concerns have been voiced regarding the exemption of decentralized protocols from compliance requirements. Fed Governor Michael Barr highlighted the potential risks, expressing worry that the current regulatory framework may be insufficient in addressing illegal financing through stablecoin transactions. Barr remarked, "I support the issuance of this proposal, but I remain concerned about the risks of illicit finance through secondary market transactions in payment stablecoins." The proposal is now entering a 60-day public comment phase.