Treasury Calls For Tougher Crypto Regulation And Oversight

A body of government regulators led by the Treasury Secretary has warned of the risks posed by the proliferation of digital assets and urged Congress to pass legislation that closes loopholes in the financial system.

At a meeting of the Financial Stability Supervisory Board on October 3, Treasury Secretary Janet Yellen said in prepared remarks that digital assets “have grown significantly in size and scope over the past few years” and have “attracted a large amount of capital and interest from retail and institutional investors”. .”

“At the same time, we have seen very significant shocks and volatility within the crypto-asset system, especially over the past year,” she continued. These concerns should be addressed through stricter enforcement of current rules, as well as passing legislation, the council recommended in a new report unanimously approved at the meeting.

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“Some of these recommendations focus on actions Council member agencies can take with existing authorities,” Yellen said. “Others demand that Congress provide new authorities.”

Comprised of leaders from federal financial agencies including the Securities and Exchange Commission and the Commodity Futures Trading Commission, the 120-page FSOC report identified vulnerabilities within the crypto ecosystem and detailed the need for government oversight increased. The meeting was called just weeks after a series of reports were submitted by Treasury and other agencies as part of President Joe Biden’s digital assets framework rollout.

“The Council’s report…finds that the current regulatory framework has gone a long way to insulating traditional financial institutions from the financial stability risks associated with crypto-assets,” Yellen said. “But it indicates that crypto-asset activities could present risks to the financial stability of the United States if their interconnections with the traditional financial system or their global scale were to develop without membership or be associated with appropriate regulation, including the application of the existing regulatory structure.”

According to a fact sheet accompanying the report, parties that issue crypto assets or facilitate crypto trade, such as exchanges, are at least partly responsible for creating these risks. In the view of the FSOC, market participants deliberately avoid putting in place safeguards for consumer protection and are prone to trading based on speculation, which makes crypto prices volatile.

The report looked at the existing regulatory regime and how crypto fits into the current framework. Instances of fraud, market manipulation, and misrepresentation of how crypto firms are monitored present regulatory gaps, as identified by the FSOC.

First, crypto assets that are not considered securities lack federal oversight, which can lead to exploitative practices and a lack of transparency. Second, companies may not have clear regulatory trade-offs, as different affiliates or subsidiaries may operate under different incompatible rules across the enterprise. Finally, the report raised concerns about some trading platforms that have considered vertically integrating services provided by intermediaries to allow clients “direct access to markets”, which can expose clients to certain practices, such as liquidation. automated.

SEC Chairman Gary Gensler said the industry is no longer as decentralized as previously announced to early adopters. “Now we see this industry populated by large, concentrated intermediaries, which are often an amalgamation of services that are typically segregated from each other in the rest of the securities markets,” he said. Gensler has taken the position that most crypto tokens should be considered securities and that currently there is widespread non-compliance with securities laws.

Acting Comptroller of the Currency Michael Hsu said in a statement that particular attention should be paid to recommendations on arbitration, inter-agency coordination and transparency. “We have known since the 2008 financial crisis what happens when regulators fail to coordinate effectively on risks that cross jurisdictional boundaries: uneven playing fields emerge and risks to financial stability develop across jurisdictions. shadow,” he said.

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Treasury Calls For Tougher Crypto Regulation And Oversight

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