Fed’s Barr Says Sablecoin Has A Potential To Be Used In Money Laundering Or Terrorist Financing

• Barr said that success in accomplishing the goals of the GENIUS Act will depend on the details of regulatory implementation.
• While the GENIUS Act made important progress in creating a regulatory framework for stablecoins, a great deal will depend on how federal and state regulators implement the statute, per Barr. 

Federal Reserve Governor Michael Barr flagged concerns surrounding stablecoin and said that it has the potential to be used in money laundering or terrorist financing since bad actors can purchase stablecoins in secondary markets that may not have customer identification requirements. 

“A second key area of concern is financial stability. While people purchasing something called a ‘stablecoin’ might reasonably assume that they can rely on redemption at par on demand, the quality and liquidity of the reserve assets backing the stablecoins could make them vulnerable,” he said in his prepared remarks. 

GENIUS ACT

Barr said that to address vulnerabilities surrounding stablecoin the Congress passed the bipartisan GENIUS Act. The act's primary tool to mitigate the risk of runs is limiting permissible reserve assets to an itemized list of high-quality, highly liquid assets. 

Tight control over reserve assets, coupled with supervision, capital and liquidity requirements, and other measures, could enhance the stability of stablecoins and make them more viable payment instruments. 

Barr said that success in accomplishing the goals will depend on the details of regulatory implementation. Key issues include regulation of reserve assets, the potential for regulatory arbitrage, the scope of permissible activities for stablecoin issuers beyond stablecoin issuance, appropriate capital and liquidity requirements, anti-money-laundering controls, and consumer protection requirements.

“While the GENIUS Act made important progress in creating a regulatory framework for stablecoins, a great deal will depend on how federal and state regulators implement the statute,” he added. 

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