US President Joe Biden’s administration urged Congress to pass laws that will clarify how cryptoassets should be regulated, amid increasing fears of a global recession.
The group of financial regulators comprising the US Financial Stability Oversight Council issued a report on Monday, calling on politicians to reach an agreement on crypto-related matters, including the way in which it is sold on the spot market.
The report follows a number of major crypto and worldwide events, including a bear market, the massive collapse of the Terra/LUNA ecosystem, a number of crypto companies going bankrupt in the subsequent fallout, Russia’s invasion of Ukraine, Congress discussing tax rules for the stablecoin industry, as well as growing fears of a global recession.
It also comes after the week that saw stock falling due to recession fears, the Dow Jones dropping into bear territory, as well as the British pound sliding to an all-time low against the dollar.
Called ‘Report on Digital Asset Financial Stability Risks and Regulation’, it “reviews financial stability risks and regulatory gaps posed by various types of digital assets and provides recommendations to address such risks,” said the press release.
It makes note of “interconnections” within the crypto ecosystem and the traditional financial system, including traditional assets held as part of stablecoin activities, as well as crypto exchanges potentially providing a wide variety of services, such as leveraged trading and asset custody, to various retail investors and traditional financial institutions.
The gaps and how to fill them
The report stated that it identified three gaps in the US crypto regulation:
- the spot markets for crypto that are not securities are subject to limited direct federal regulation;
- crypto businesses do not have a consistent or comprehensive regulatory framework and can engage in regulatory arbitrage;
- a number of cryptoasset trading platforms have proposed offering retail customers direct access to markets by vertically integrating the services provided by intermediaries such as broker-dealers or futures commission merchants.
To address regulatory gaps, the Council recommended the following steps:
- the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for cryptoassets that are not securities;
- steps to address regulatory arbitrage including coordination, legislation regarding risks posed by stablecoins, legislation relating to regulators’ authorities to have visibility into, and otherwise supervise, the activities of all of the affiliates and subsidiaries of cryptoasset entities, and appropriate service provider regulation;
- study of potential vertical integration by cryptoasset firms;
- bolstering its members’ capacities related to data, analysis, monitoring, supervision, and regulation of crypto activities.
Yellen was quoted as saying that,
“The report concludes that crypto-asset activities could pose risks to the stability of the U.S. financial system and emphasizes the importance of appropriate regulation, including enforcement of existing laws. It is vital that government stakeholders collectively work to make progress on these recommendations.”
According to the Financial Times, however, those close to the congressional negotiations said they were still months away from passing legislation.