U.S. Financial Stability Oversight Council Calls for Legislative Action on Crypto Regulation

Officials with the United States Financial Stability Oversight Council (FSOC) have recommended that U.S. lawmakers enact legislation to address regulatory gaps in crypto-related activities. In its annual report released on December 16, the FSOC urged Congress to pass laws granting “explicit rulemaking authority for federal financial regulators over the spot market for crypto-assets,” while noting that tokens identified as securities would be exempt. 

Lack of Comprehensive Regulatory Framework

The FSOC expressed concerns about the absence of a comprehensive regulatory framework that specifically addresses stablecoins and enhances visibility and supervision of crypto firms in the United States. The council pointed to the recent collapse of crypto exchange FTX as a significant motivating factor for recommending action on digital assets.

According to the FSOC, the troubles at FTX led to price declines in Bitcoin and other cryptocurrencies, although the impact on the broader U.S. financial system was described as limited.

Comments from Gary Gensler

“Risks from this speculative, volatile, and what I believe is a largely non-compliant market put investors at risk,” remarked Securities and Exchange Commission (SEC) Chair Gary Gensler in the FSOC report. He added, “This is why bringing intermediaries and issuers of crypto securities tokens into compliance is so important. 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.”

Background and Previous Recommendations

The annual report reiterated the FSOC’s calls for comprehensive legislative action, echoing its earlier September recommendations initiated by President Joe Biden’s executive order on crypto. At the time of publication, both the SEC and the Commodity Futures Trading Commission (CFTC) were advocating for their respective agencies to take leading roles in crypto regulation. However, the FSOC’s report did not specify which agency should assume responsibility following Congressional directives.

Conclusion

The ongoing discussions surrounding crypto regulation and the recommendations put forth by the FSOC highlight the necessity for a structured framework that can protect investors and maintain a secure marketplace. The complexities introduced by cryptocurrencies and blockchain technology require regulators to adapt and provide clear guidelines for the emerging digital asset landscape.