Yesterday, October 3rd, 2022, the Financial Stability Oversight Council (FSOC) urged Congress to expedite legislation addressing the risks digital assets pose to the financial system, including legislation to strengthen oversight of crypto spot markets and stablecoins.
The report was approved in response to Section 6 of Biden’s Executive Order – Ensuring Responsible Development of Digital Assets.
In particular, the FSOC identified a number of gaps that exist in crypto regulation, namely:
- The fact that there is currently limited oversight of the spot market for tokens that are not securities. In this respect, crypto spot markets are vulnerable to conflicts of interest and market manipulation, such as insider trading.
- The potential for crypto businesses to take advantage of favorable regulatory regimes (i.e. regulatory arbitrage). The report noted that businesses could have subsidiaries and affiliates operating across multiple jurisdictions, and no one regulator would have full visibility of the risks across the entire business.
- Finally, whether cryptocurrency businesses should be permitted to provide services traditionally offered by intermediaries, such as broker-dealers and futures commission merchants.
Secretary of the US Treasury Janet Yellen said that the report provides “a strong foundation for policymakers as we work to mitigate the risks of digital assets while realizing the potential benefits. They also provide a valuable addition to the public’s understanding of digital assets.”
Read the full FSOC report here.