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Biden Administration Calls On Congress To Rein In Crypto Risks
The Biden administration called on Congress to cover gaps in the regulation of cryptocurrencies, renewing a push for tougher oversight following the collapse of crypto exchange FTX.
Himanshu S.
4:44 17th Dec, 2022

The Financial Stability Oversight Council, chaired by Treasury Secretary Janet Yellen, said Congress should take steps to ensure the crypto industry is subject to a framework to ensure orderly and transparent trading, investor protections and other rules imposed on traditional financial firms.

While crypto-asset interconnections with the traditional financial system are limited now, they could increase rapidly, the policy makers warned in their annual report, released Friday.

Federal agencies are jostling for authority over cryptocurrency markets, which swelled to roughly $3 trillion in value last year before collapsing this year. Policy makers say the asset class raises a host of concerns related to investor protection, financial stability and national security.

Friday’s recommendations, which are consistent with what the Biden administration called for before FTX filed for bankruptcy last month. That includes ensuring the regulation of the “spot” market for cryptocurrencies that don’t meet the definition of a security overseen by the Securities and Exchange Commission.

It also includes a call to impose comprehensive supervision on crypto entities and all of their affiliates – moves that would give regulators better vision into the activities of firms operating in multiple countries with risk spread across various subsidiaries.

Those steps would likely require Congress and potentially overseas policy makers to act.

The prospects for legislation advancing is uncertain in a divided new Congress that begins next month.

Senate Banking Committee Chairman Sherrod Brown (D., Ohio), a crypto skeptic, didn’t take meaningful steps to rein in the industry in his first two years as head of the Senate panel, but has recently expressed a willingness to work with Ms. Yellen on a bill. Meanwhile, his expected counterpart in the House, Rep. Patrick McHenry (R., N.C.), has generally expressed enthusiasm about cryptocurrencies’ potential benefits and reluctance to impose heavy-handed requirements on the industry.

Several lawmakers offered crypto-related legislation in the current Congress, some which were supported by the industry, but none came close to passing.

The White House hasn’t weighed in on the jurisdictional jump-ball among regulators including the SEC, the Commodity Futures Trading Commission and the Federal Reserve. All of them claim or envision authority over some segments of the crypto market.

As with an earlier crypto report released by the FSOC in October, Friday’s report said large parts of the cryptocurrency industry fall under the jurisdiction of the existing financial regulatory laws and pressed regulators to continue to enforce those laws.

The report comes at a turbulent time for the industry, a largely unregulated market that boomed during the pandemic but has been hammered this year by rising interest rates and the failure of several significant industry players.

FTX, one of the largest crypto exchanges in the world, filed for bankruptcy after the firm ran out of cash and a merger with rival Binance collapsed. The firm’s failure marked a sudden fall from grace for Sam Bankman-Fried,

Prosecutors this week alleged that he took customers’ money to pay the expenses and debts of Alameda Research, an affiliated trading firm. Mr. Bankman-Fried is charged as well with conspiring to defraud the U.S. and violate campaign-finance rules by making illegal political contributions. Mr. Bankman-Fried and members of his team contributed more than $70 million to election campaigns at head of the 2022 midterms.

Another Treasury Department report released in September emphasized risks to consumers, financial stability and rule of law stemming from cryptocurrencies, while assessing the practical uses of digital tokens to be limited. It called for agencies like the SEC to rigorously enforce existing regulations in the cryptocurrency market, dealing a blow to the industry’s hopes of getting a more tailored rule set.


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