The Biden administration has called on Congress to pass new laws to clear up how cryptocurrencies should be regulated, as officials warn delays on Capitol Hill could put investors at risk.
The US Financial Stability Oversight Council — a group of the country’s top financial regulators which includes the Treasury — issued a report on Monday urging politicians to come to agreement on a number of different areas, including how to regulate bitcoin and other crypto assets sold on the spot market.
The report comes as members of Congress debate new proposals covering everything from the $140bn stablecoin industry to tax rules for crypto brokers. But while Biden administration officials worry about a repeat of the collapse of now-infamous stablecoin TerraUSD, those close to the Congressional negotiations say they are still months away from passing new legislation.
FSOC’s report also comes as the crypto industry is reeling from a historic collapse in prices with several prominent companies falling into bankruptcy, raising questions about who ought to carry out chief oversight of volatile crypto markets.
Regulatory agencies such as the Securities and Exchange Commission and Commodity Futures Trading Commission continue to press for jurisdiction over the industry. SEC chair Gary Gensler has argued that most cryptocurrencies — and the platforms where they are traded — should be regulated by the SEC because many of the tokens qualify as securities under US law.
A Treasury official said the report’s authors — who include Gensler and Rostin Behnam, the chair of the CFTC — did not intend to back one agency over another.
The report warned many cryptoasset activities lacked “basic risk controls to protect against run risk or to help ensure that leverage is not excessive”, Moreover, “cryptoasset prices appear to be primarily driven by speculation rather than grounded in current fundamental economic use cases, and prices have repeatedly recorded significant and broad declines”.
FSOC’s report also suggests inter-agency co-operation to close existing loopholes that allow crypto asset businesses to find the most favourable regulation for their business.
“Some crypto asset businesses may have affiliates or subsidiaries operating under different regulatory frameworks, and no single regulator may have visibility into the risks across the entire business.”
To that end, FSOC recommended Congress pass rules that would give federal markets regulators authority to make rules on crypto asset markets that are not covered under existing US securities laws.
The rules should cover conflicts of interest, abusive trading practices, customer asset segregation, cyber security and record-keeping.
The council’s report also calls on Congress to pass legislation to allow regulators visibility into crypto platform subsidiaries, as well as creating a federal framework for stablecoin issuers.
The group of regulators added that while traditional finance’s exposure to crypto activity is limited, this could “increase rapidly”. Stablecoin activity, leveraged trading and asset custody are cited as examples of potential interconnectedness between traditional finance and crypto. This summer, crypto exchange Coinbase forged a deal with asset management giant BlackRock to give the latter’s clients easier access to crypto.