David Schwartz seems unsurprised that the Fed is reacting negatively to the new stablecoin issued by PayPal.
Ripple’s chief technology officer (CTO) David Schwartz has commented on the increased regulatory requirements imposed by the US Fed for the country’s cryptocurrency environment.
Schwartz tweeted a shady remark, referring to PayPal’s newly launched stablecoin (PYUSD) and whether or not the company had the necessary approvals. In a recent tweet, John Reed Stark Consulting President gave some insight into a new announcement from the Federal Reserve. The apex bank and regulator has now mandated that all state banks under the Federal Reserve system must receive a written supervisory nonobjection from the regulator before dealing with stablecoins. This covers all transactions, including holding, issuing, or otherwise transacting with stablecoins.
The announcement also explains the Fed’s expectation from the process of obtaining the nonobjection. It says:
“To obtain a written notification of supervisory nonobjection, a state member bank should demonstrate that it has established appropriate risk management practices for the proposed activities, including having adequate systems in place to identify, measure, monitor, and control the risks of its activities, and the ability to do so on an ongoing basis.”
In response to Schwartz’s comment on the announcement, the Ripple CTO was asked whether or not PayPal received the required approval. Schwartz answered and suggested that the Fed was not on PayPal’s list of regulatory approvals required. Although somewhat slyly, the same account then asked Schwartz about PayPal having the right political connections to be “covered in every aspect.” Schwartz then responded saying “so did they,” presumably another sly response at PayPal.
The Schwartz Reaction to Fed Requirements
Schwartz described the Fed’s issue as a “challenger,” suggesting that the requirements may be problematic. The Fed has identified a few risks and expects banks interested in transacting stablecoins to address these problems. According to the publication, these include operational, cybersecurity, liquidity, illicit finance, and consumer compliance risks. According to the Fed, all banks must notify the regulator before partaking in any activity related to stablecoins, including testing. The Fed also says it will continue a supervisory review and “heightened monitoring” of the activities even after issuing the nonobjection.
Reactions continue to pour in following PayPal’s launch of the PYUSD. Yesterday, Coinspeaker reported that the leadership of the Financial Services Committee of the US House of Representatives may feel differently about PayPal’s stablecoin. Both Reps. Maxine Waters and Patrick McHenry have called for a solid regulatory framework to guide these stablecoins. However, Waters has warned of inherent risks.
According to her, a regulatory framework is necessary to assure compliance on the part of the company. She also says it is necessary to protect customers. Waters stated that regulation is essential mainly because PayPal, at 435 million customers worldwide, has more than the online accounts of megabanks. On the other hand, McHenry is more in favor. Although he also believes in a regulatory framework, the chairman sees stablecoins differently. McHenry described them as a “pillar of our 21st-century payments system.”