The federal government’s top financial regulators have called for stricter oversight of stablecoins, citing concerns over market integrity, investor protection and illicit finance.

In a much-awaited report released on Monday, the President’s Working Group on Financial Markets (PWG) said stablecoins could “support faster, more efficient, and more inclusive payments options” but “present a variety of risks.”

There are also “key gaps in prudential authority” over stablecoins, the report said in urging Congress to pass legislation promptly that “should provide regulators flexibility to respond to future developments and adequately address risks across a variety of organizational structures.”

“Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy,” the PWG, which includes top officials from the Treasury Department, the Federal Reserve, and the Securities and Exchange Commission, warned.

The market capitalization of stablecoins has grown from a little more than $20 billion a year ago to more than $130 billion today. The steady valuation of the digital assets and link to national currencies has made them an increasingly popular source of liquidity in cryptocurrency markets around the globe.

But regulators including Treasury Secretary Janet Yellen and SEC Chair Gary Gensler have sounded the alarm over the lack of a regulatory framework. The PWG report “will likely boost policymakers’ efforts to put guardrails around stablecoins,” according to Reuters.

Market integrity and investor protection risks encompass possible fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, the report said.

To address the risks, the PWG recommends legislation that would require stablecoin issuers to be insured depository institutions, require custodial wallet providers to be subject to appropriate federal oversight, and require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities.

The report also stressed that “in the immediate term,” regulatory agencies “are committed to taking action to address risks falling within each agency’s jurisdiction.”

“The SEC and FDIC currently have regulatory authority to address many of the problematic aspects of these cryptocurrencies,” noted Todd Phillips, director of financial regulation for the Center for American Progress.

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