Amid the rapid growth of the digital currency marketplace, the Treasury Department’s Financial Stability Oversight Council warned in a new report that cryptocurrencies could “pose risks” to the stability of the U.S. economy – especially in the event of lax government oversight.
The council’s “Report on Digital Asset Financial Stability Risks and Regulation” is in response to President Biden’s executive order (EO) to ensure the responsible development of digital assets, including cryptocurrencies.
President Biden issued the EO in March. The directive tasked the council “to identify and mitigate economy-wide (i.e., systemic) financial risks posed by digital assets and to develop appropriate policy recommendations to address any regulatory gaps.”
“Crypto-asset activities could pose risks to the stability of the U.S. financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure,” the report says.
The report goes on to offer several recommendations to combat such risks. These include that agencies continue to enforce existing rules and regulations, Congress pass legislation that provides for “explicit rulemaking authority” for financial regulators for crypto-assets that are not securities, and that regulators continue to coordinate with each other in the supervision of cryptocurrencies.
Additionally, the council recommended Congress pass legislation to create a comprehensive Federal prudential framework for stablecoin issuers, as well as legislation to create authority for regulators to “have visibility into, and otherwise supervise, the activities of all of the affiliates and subsidiaries of crypto-asset entities.”
Lawmakers have already introduced legislation to try and provide regulatory clarity on the growing cryptocurrency and blockchain industries. Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wy., introduced legislation in June that aims to create a complete regulatory framework for digital assets.
Sens. Debbie Stabenow, D-Mich., Cory Booker, D-N.J., John Boozman, R-Ark., and John Thune, R-S.D., also introduced legislation on August 4 that would create commodities-type regulation of some digital assets.
Rep. Raja Krishnamoorthi, D-Ill., chair of the House Subcommittee on Economic and Consumer Policy, has also called on Federal agencies and digital asset exchanges to gather information on actions they’re taking to combat cryptocurrency-related fraud and scams.
“I acknowledge the Treasury Department for taking the important step of recognizing the financial harm that crypto-related fraud and scams cause everyday investors who have been drawn to the United States’ fastest growing asset class by stories of skyrocketing prices and overnight riches,” Rep. Krishnamoorthi said in response to the report.
“As the Treasury Department works to implement its recommendations in conjunction with other U.S. regulatory and law enforcement entities, I trust that it will maintain focus on how the U.S. government can combat fraud and scams that are fleecing American consumers and work to ensure that the cryptocurrency ecosystem becomes a safer place for investors,” he added.