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FSOC Calls for Regulatory Reform from Congress
There are pushes for regulatory reform that hold promise, and then there is this. While we agree it falls on Congress to require clarity and a fair reform of crypto regulation, what the Financial Stability Oversight Council is calling for is full of potential red flags but still on the right track.
The latest annual report from the FSOC – the panel of U.S. financial agency chiefs that includes U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and the heads of several other regulatory agencies – said they have “concerns about an inability to reach into spot markets for tokens that aren’t securities,” and that Congress needs to establish a full set of rules that covers the whole crypto industry.
The report specifically recommended "legislation relating to regulators’ authorities to have visibility into and supervise the activities of all of the affiliates and subsidiaries of crypto-asset entities."
In a separate closed-door portion of the meeting, the regulators – 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 dramas. According to a summary of that conversation later released by the Treasury Department, the members are watching those developments closely and "spillovers to the traditional financial system have remained limited" so far.
"While the risks from the crypto markets generally do not appear to date to have spread to the traditional financial sector, we must remain vigilant to guard against that possibility," Gensler said in the open meeting. Already, he argued, the "largely non-compliant market" is putting individual investors at risk.
The annual 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 other cryptocurrencies that aren’t deemed securities. So far, most legislation favors the CFTC in that role.