There are hazardous gaps in how crypto is overseen, according to U.S. Treasury Secretary Janet Yellen, speaking to the Financial Stability Oversight Council (FSOC) – restating a view that’s long been adopted by U.S. lawmakers, regulators and the industry itself.
The FSOC – a panel of U.S. financial agency chiefs that includes Yellen, Federal Reserve Chair Jerome Powell and the heads of several other regulatory agencies – met Friday to discuss risks to the financial system and approve the council’s annual report. While echoing the same widely held concerns about an inability to reach into spot markets for tokens that aren’t securities, Yellen shared another common position: Only Congress can give the agencies the powers they need to establish a full set of rules that covers the whole industry.
“We have seen significant shocks and volatility in the crypto assets system over the past year, including in recent months,” Yellen said during the meeting, calling digital-assets risks one of the “key priorities” in this year’s report.
The FSOC was built as the ultimate lookout for future financial tsunamis after the global mess in 2008, and officials were quick to point out that crypto’s current troubles don’t pose any current risk to the traditional system during the meeting. The Treasury document was set to illustrate that Friday, citing the fresh example of recent industry turmoil having left U.S. banking unscathed.
It was in a separate closed-door portion of the meeting that the regulators – also including Gary Gensler, the head of the Securities and Exchange Commission (SEC), and Rostin Behnam, who runs the Commodity Futures Trading Commission (CFTC) – discussed the recent crypto market drama, and their specific views weren’t disclosed.
The officials presenting the report also flagged a topic that could be considered a legacy of FTX: its campaign to cut out the middlemen in clearing crypto derivatives trades, including the proposal that customers’ positions could be closed out by an automated system. The council called for a closer look at the dangers that concept might pose, even though FTX’s proposal to the CFTC was dropped by the company when it collapsed.
The sentiments expressed in the latest annual report are similar to the much lengthier document released by the council in October at the behest of President Joe Biden’s executive order. That earlier report suggested Congress needs to soon pick an agency that will have power over the spot markets for bitcoin trading and any others that aren’t deemed securities. So far, most legislation favors the CFTC in that role.