WASHINGTON, D.C. – U.S. Representative Ritchie Torres (NY-15), as a member of the House Financial Services Committee, today participated in a hearing of the Subcommittee on Digital Assets, Financial Technology and Inclusion entitled “Understanding Stablecoins’ Role in Payments and the Need for Legislation”.

Testimony was provided by five witnesses: Adrienne A. Harris, Superintendent, New York State
Department of Financial Services, Dante Disparte, Chief Strategy Officer and Head of Global Policy, Circle, Austin Campbell, Adjunct Assistant Professor of Business, Columbia Business School, Jake Chervinsky, Chief Policy Officer, the Blockchain Association, and Delicia Reynolds Hand, Director, Financial Fairness, Consumer Reports.

Stablecoins are a class of digital assets designed to offer price stability by being pegged to another asset’s value. The most popular stablecoins are currently pegged to the U.S. dollar. Stablecoins, as the name implies, are intended to be less volatile than other digital assets and sufficiently stable to enable them to be used in a similar manner to currency. Additional relevant background can be found here.

VIDEO of Rep. Torres’s five minutes of questioning can be found here.

VIDEO of the full hearing can be found here.

A RUSH TRANSCRIPT of Rep. Torres’s remarks and questioning is below, as delivered:

REP. TORRES: Thank you, Superintendent Harris. I said to you privately and will reiterate publicly that I will not support any stable coin legislation that preempts the New York State Department of Financial Services, or otherwise encroaches on the sovereignty of New York State. As a New Yorker, that is a red line for me. When it comes to finance, there’s a long tradition of dual regulation. Just like banking has both the federal option and the state option, stablecoin issuance should have both a federal option and a state option, and a state option should exist not only on paper, but in practice, the federal government should certainly have a floor that prevents regulatory arbitrage. To be sure, there’s no need for a ceiling that preempts either in theory or in practice. Does the proposed legislation before us create a genuine system of dual regulation?

THE HON. ADRIENNE A. HARRIS, Superintendent, New York State of Department of Financial Services: Thank you so much, Congressman. It’s been such a pleasure to get to know you and work with you since taking this role, so I do appreciate your partnership. I think there are improvements that could certainly be made to the present legislation. Although, it has language that states nothing in the legislation will preempt states in practice, I think there are a number of provisions that give federal regulators veto authority over state regulators on their judgments and oversights that are counterproductive and provide a disincentive for companies to take a state path.

REP. TORRES: We’re not quite there yet.

MS. HARRIS: Not quite yet.

REP. TORRES: Do you agree that stablecoin issuers should be fully reserved and that those reserves should consist of 100% cash or cash equivalence?

MS. HARRIS: Absolutely, and that’s what we do in New York.

REP. TORRES: Do you agree that those stablecoin reserves should be verified not only by self-attestation but also by third-party audit?

MS. HARRIS: Yep, and that’s what we do in New York.

REP. TORRES: Common sense dictates that you cannot have an honor system, in which a charlatan like Sam Bankman Fred claims to be fully reserved, and then the regulators take his word for it.

MS. HARRIS: Exactly.

REP. TORRES: The PWG report proposes banking regulation for stablecoin assures, but since a stablecoin issuer has no fractionalization of reserves and no lending function like a bank, it would seem to me, that a stablecoin issuer operates differently from a bank, and therefore should be regulated differently. Mr. Chervinsky, Do you agree with that analysis?

MR. JAKE CHERVINSKY, Chief Policy Officer, the Blockchain Association: I completely agree, and I think that we can design reasonable tailored regulations for nonbank entities to issue stablecoins in a way that is just as safe and sound as a bank doing the same.

REP. TORRES: SEC Chair Gary Gensler asserts that an alternate regulatory framework for crypto would “undermine ninety years of securities law”. Since American federalism has 50 laboratories of democracy, we can actually test that thesis, that hypothesis against the regulatory experience on one of those laboratories – New York State. So, in New York State, crypto regulation is segregated from securities regulation. The New York State Department of Financial Services regulates crypto whereas the New York State Attorney General regulates securities. So, has the Gensler hypothesis been proven right or wrong In New York? Has a separate regulatory framework for crypto undercut securities regulation?

MS. HARRIS: What I would say is our authorities do not depend on definitions about what is a security, what is a commodity, what is a currency. At DFS, we have a blanket authority over virtual assets and we exercise it accordingly. Some of our companies are also subject to registration requirements with the AG. I think what we’ve done in New York has proved quite successful for some of the reasons we’ve discussed today.

REP. TORRES: So, has a separate licensing regime for crypto come at the expense of regulatory rigor?

MS. HARRIS: No, not at all. To the contrary.

REP. TORRES: In fact, New York State DFS is the most rigorous regulator of crypto in the country.

MS. HARRIS: And I would say in the world.

REP. TORRES: In fact, what state was the first state to raise red flags about insufficient reserves of Teather?It was not the SEC, was not the CFTC, it was the State of New York.

MS. HARRIS: Correct.

REP. TORRES: And so the notion that a separate regulatory framework for crypto will undermine 90 decades, 90 years of securities law has been definitively disproven here in New York State. The legacy financial system has high fees among delays that prey upon the lowest-income Americans. More people of color have to pay predatory fees, in order to transfer their own money to loved ones abroad. Stablecoin has the ability to function as a currency, and blockchain has the ability to move money from peer to peer in real time. Mr. Campbell, is it fair to say that the combination of those two technologies has the potential to create a better, cheaper, and faster payment system? That question is for Mr. Campbell and Mr. Disparte.

MR. AUSTIN CAMPBELL, Adjunct Assistant Professor of Business, Columbia Business School: Thank you for the question. I would say yes, unequivocally. The beauty of a blockchain is that it treats everybody the same. If you have low fees, high transparency, high ability to transact, everybody can use it regardless of the amount of money they have. And I think that is one of the best features of this new technological innovation.

MR. DANTE DISPARTE, Chief Strategy Officer and Head of Global Policy, Circle: Unequivocally.

REP. TORRES: Short and sweet, I yield back.

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