Republicans Question Treasury Secretary on Crypto Regulatory Gaps

• Lawmakers want to know how the Financial Stability Oversight Council defines cryptocurrencies.
• They also asked about coordination between the SEC and CFTC, and the application of securities laws to crypto issuers.
• Treasury Secretary Yellen reiterated her call for Congress to regulate stablecoins and the spot market for crypto assets.

Republican lawmakers are seeking answers from Treasury Secretary Janet Yellen on how the Financial Stability Oversight Council (FSOC) defines cryptocurrencies and the regulatory gaps in the spot market for digital assets.

FSOC’s Role and Concerns

The FSOC, led by Yellen, is tasked with monitoring the stability of the financial system. In a 2022 report, the council identified gaps in the spot market regulation and recommended legislation to grant rulemaking authority to financial regulators.

The lawmakers argue that regulators haven’t taken sufficient action to address these concerns and foster innovation in the U.S.

In a letter to Yellen, four Republican representatives asked about the FSOC’s views on how securities laws apply to crypto issuers, citing the recent Ripple Labs vs. SEC case.

They also inquired whether Bitcoin and Ether should be considered securities and if expanding the CFTC’s jurisdiction to the spot market would be appropriate.

Yellen’s Response and Call to Action

Testifying before the House Financial Services Committee, Yellen acknowledged the regulatory gaps and urged Congress to pass legislation to address them, particularly for stablecoins and non-security crypto assets in the spot market. She emphasized the need for consumer protection and mitigating financial stability risks associated with these digital assets.

“The Council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations. Applicable rules and regulations should be enforced, and Congress should pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities,” Yellen stated.

https://docs.house.gov/meetings/BA/BA00/20240206/116798/HHRG-118-BA00-Wstate-YellenJ-20240206.pdf

Yellen backs regulators like the SEC in their bid to rein in crypto, balancing concerns with measured action. The aim is to Protect financial stability and curb risks, despite anticipated industry growth (CAGR 9.10% to reach $32.9 billion by 2028).

It Favors a “strong regulatory framework” in collaboration with global partners, acknowledging crypto’s international reach.