Digital Assets and Cryptocurrency

Position

• ICBA has serious concerns regarding threats posed by cryptocurrency to privacy, consumer protections, and financial stability resulting from increases in money laundering, terrorist financing, and fraudulent activity.
• Unregulated cryptocurrency threatens to disintermediate community banks and undermine their ability to provide funding to support local economic activity, growth, and development.
• ICBA urges policymakers to ensure public trust by fostering collaboration between domestic and international regulatory authorities to mitigate risks as the adoption of cryptocurrency continues to increase.
• ICBA supports ongoing efforts by policymakers to harmonize regulations to ensure strong, clear, and consistent oversight of cryptocurrency service providers and establish guidelines for any permissible activities by banks.
• ICBA believes most cryptoassets are likely offered and sold as securities. Therefore, crypto entities should be subject to relevant securities laws and regulations. ICBA supports the efforts of the U.S Securities and Exchange Commission to apply the securities framework to cryptoassets and related entities.
• ICBA urges policymakers, regulators, law enforcement, and national security organizations to coordinate their efforts to combat ransomware and prevent bad actors from using cryptocurrencies for illicit activities.
• ICBA encourages regulators to collaborate on a comprehensive approach to prevent the rise of decentralized finance (DeFi), a shadow banking system filled with unregulated, decentralized platforms that pose risks to consumers, the financial system, and U.S. national security.
• ICBA urges policymakers to address serious risks to financial stability, national security, and consumer protection posed by stablecoins by ensuring that stablecoin issuers do not have access to Federal Reserve master accounts or the payments system. Special purpose bank charters or similar alternatives should not be granted to crypto entities that do not fully meet the requirements of federally insured and supervised chartered banks.

Background

In the past year, the cryptocurrency industry has demonstrated continued growth despite large-scale exploits and lawsuits against significant players. Community bankers remain concerned about the risks presented by digital assets, including rampant scams and misrepresentations to consumers, and their growing potential to jeopardize the financial stability of the traditional banking sector. Community banks are at risk of disintermediation if stablecoins become widely adopted for payments.

ICBA urges policymakers to develop a consistent regulatory framework for stablecoins that addresses the risks they pose to the wider financial system, preserves the separation of banking and commerce, and ensures that issuers do not have access to Federal Reserve master accounts. Bankers remained unconvinced that stablecoins are the “silver bullet” for cross-border payments. Addressing these complex issues will require collaboration with international partners to resolve critical regulatory, legal, technical and governance questions.

DeFi, a growing ecosystem of financial applications that run on public blockchains, also threatens to disintermediate community banks and create a shadow banking system filled with unregulated platforms that pose risks to consumers, the financial system, and U.S. national security. Any regulatory regime applied to cryptocurrency should be comparable to the multitude of regulations applicable to functionally similar products and services offered by the traditional financial system.

Cryptocurrencies also have a long history of being used for illicit activities, including sanctions evasion and money laundering by North Korea. Broader use of cryptocurrency, without accompanying regulation or oversight, allows financial crimes and threats to national security to proliferate. Therefore, protecting national security and implementing anti-crime measures should be primary drivers of cryptocurrency policymaking and regulation. ICBA strongly supports regulatory efforts to curtail the use of cryptocurrency mixers and anonymity-enhanced cryptocurrencies.