Urgent Call for Crypto Regulation Legislation by Financial Regulators
- Congress Urged to Address Crypto Concerns
- FSOC's Annual Report and Recommendations
- FSOC's Urgent Appeal to Congress
- Inaction Could Prompt Regulatory Intervention
- FSOC Highlights Cryptocurrency Vulnerabilities
- Stablecoins and Nonbank Financial Institutions: Areas of Increased Scrutiny
Congress Urged to Address Crypto Concerns
The Financial Stability Oversight Council (FSOC) highlights the urgent need for legislative intervention in its latest report. The body expresses its concerns about the current status of cryptocurrencies and suggests that Congress needs to act promptly.
FSOC's Annual Report and Recommendations
FSOC, an intergovernmental organization comprising heads of leading U.S. financial regulatory bodies, recently released its annual report. The document offers insights into key areas such as climate, banking, cybersecurity, and artificial intelligence among others. Cryptocurrency has also been allocated a separate section due to its growing significance in the financial landscape.
The council insists that Congress should pass legislation to clearly define and address spot markets for crypto and stablecoins. These recommendations mirror those proposed by FSOC at the end of 2022.
FSOC's Urgent Appeal to Congress
The report states, The Council urges Congress to pass legislation that provides federal financial regulators with explicit rulemaking authority over the spot market for crypto-assets that are not securities. Congress should also pass legislation that would create a comprehensive prudential framework for stablecoin issuers that would also address the associated market integrity, investor and consumer protection, and payment risks.
Currently, two bills addressing these issues are awaiting consideration by the House of Representatives, after the Financial Services Committee Chair Patrick McHenry (R-N.C.) garnered enough support to move the bills out of committee. The future of these bills remains uncertain, particularly regarding their chances of reaching Senate for voting.
Inaction Could Prompt Regulatory Intervention
In the absence of adequate legislative action, FSOC warns that regulators may be compelled to intervene, as they did last year. The Council remains prepared to consider steps available to it to address risks related to stablecoins in the event comprehensive legislation is not enacted, the report read.
FSOC Highlights Cryptocurrency Vulnerabilities
FSOC's report identifies several potential vulnerabilities associated with cryptocurrencies. These include price volatility, high leverage, cybersecurity risks, and other concerns for investors and financial markets. The report also cites the recent Curve Finance hack, which resulted in a $50 million loss, further exemplifying the risks associated with cryptocurrencies.
Stablecoins and Nonbank Financial Institutions: Areas of Increased Scrutiny
FSOC's report pays particular attention to stablecoins and nonbank financial institutions. In the report, FSOC voices its ongoing concerns about stablecoins, emphasizing that a significant scale-up could lead to a run on the stablecoin and trigger a fire sale of traditional assets. Nonbank financial institutions are also mentioned as they are becoming increasingly active and therefore must be closely monitored for potential risks.
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