On April 6, 2022, Senator Pat Toomey (R-PA), ranking member of the Senate Banking, Housing, and Urban Affairs Committee, released a discussion draft of the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act (“TRUST Act”). The TRUST Act comes after Senator Toomey solicited legislative proposals on stablecoin regulations in the latter half of 2021.
The TRUST Act focuses on regulating payment stablecoins, which are defined as:
- convertible virtual currencies that are designed to maintain a stable value relative to fiat currency,
- convertible directly to fiat currency by the issuer,
- designed to be widely used as a medium of exchange,
- issued by a centralized entity,
- not paying interest, and
- recorded on a public distributed ledger.
The TRUST Act clarifies that payment stablecoins are not securities and that stablecoin issuers are not investment companies or investment advisers.
The TRUST Act allows three entities to issue payment stablecoins:
(1) money transmitting businesses authorized under state banking laws,
(2) insured depository institutions, and
(3) “national limited payment stablecoin issuers.”
A national limited payment stablecoin issuer would be a newly created entity, governed by a new license from the Office of the Comptroller of the Currency (“OCC”), that is permitted to issue and redeem payment stablecoins. These issuers must maintain reserves with a market value equal to 100 percent of the par value of outstanding payment stablecoins in cash, cash equivalents, or level 1 high-quality liquid assets (as currently defined under federal regulation) denominated in US dollars. The TRUST Act also clarifies that insured depository institutions can issue payment stablecoins, and, if they segregate into a separate legal entity the issuance of these payment stablecoins and the funds used to back payment stablecoins, these institutions would subject to the same tailored regulatory standards as national limited payment stablecoin issuers for activity surrounding the payment stablecoin issuance.
Finally, the TRUST Act also sets disclosure guidelines for payment stablecoin issuers. An issuer must publicly disclose the assets backing payment stablecoins on a monthly basis and undergo quarterly reviews from a registered public accounting firm and disclose the results. Issuers must also publicly disclose redemption policies and confirm that assets backing payment stablecoins do not materially diverge from the disclosed assets.