House discusses stablecoins, anti-money laundering

Driving the news: Most of the discussion in a House Financial Services Committee hearing Tuesday on payment stablecoins centered on an updated discussion draft of the STABLE Act, written by Rep. French Hill, (R-Ark.), the committee's chair, and Rep. Bryan Steil (R-Wis.).

• Rep. Sean Casten (D.-Ill.), noted that traditional payment rails are all constantly monitored by the entities that operate them, but that "stablecoins don't have that nexus of control.

He asked witnesses if, whatever Congress does, it shouldn't include something in the law such that stablecoins "don't become a backdoor for the bad actors."

• Carole House of the Atlantic Council, a Washington think tank, mainly stood in for folks arguing that more needs to be done to keep stablecoins out of the hands of entities under U.S. sanctions and money launderers.
• In her written testimony she argued that the world is much more interconnected than it has ever been.
• She contends that stablecoin legislation should be part of a larger, holistic approach to regulation of payments platforms, "which are growing enough in complexity and adoption."

House urged the committee to add back language on these issues that was contained in prior legislation.

• Rep. Maxine Waters (D.-Ca.), who released legislation with that language earlier this year, spoke to that during the hearing.
• She noted that her bill — which was actually written in the prior Congress with former committee chair Patrick McHenry — extends supervision to some of the intermediaries for stablecoins and also provides criminal penalties for some violations.

The other side: "My big concern here is that we [not] let perfection be the enemy of the good," Steil, the committee chair, said during the hearing, while acknowledging that it is important that stablecoins adhere to the Bank Secrecy Act.

• As many proponents of digital assets often point out, cash is frequently used by enemies of the United States, and it's basically untraceable.
• "We know that stablecoins are a major step forward from cash transactions," he said.

Another witness argued for the right to innovate. In the deep past, payments have been a private matter, Randall Guynn, of the financial institutions group at the Davis Polk law firm, noted in his testimony.

• "People have been free during most of human history to innovate in the creation of private money," he writes, saying that stablecoins are the latest form. "Including any requirement to obtain government permission to do so."

That sentiment was echoed by Rep. Warren Davidson (R-Oh.), who began by saying, "In a state of nature, people can transact. The government isn't the giver of the right to transact."

• "We're in a period where a lot of the debate about the regulation is how much control should the government have."

What we're watching: Over in the Senate, the Banking Committee looks likely to vote Thursday on a separate bipartisan stablecoin bill led by Sen. Bill Hagerty (R-Tenn.), an updated version of The GENIUS Act.

• That bill has two Democratic cosponsors, Rep. Kirsten Gillibrand (D.-N.Y.) and Sen. Angela Alsobrooks. (D.-Md.)

The bottom line: The spirit in Congress this year seems very much to be that something is going to pass on this topic. The question is just what.

• "It is essential that we are deliberate and get this job done and done right," Chair French Hill (R.-Ark.) said in his opening remarks.

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