Biden Administration Calls on Congress to Rein In Crypto Risks

While crypto-asset interconnectionsThe current financial system’s resources are very limited and could grow rapidly, policy makers warned Friday. This could pose a threat to the industry unless it is better managed.

“We have seen significant shocks and volatility within the crypto assets system over the past year, including in recent months,” Ms. Yellen said.

Federal agencies vie for authority cryptocurrency marketsThe asset class, which reached a staggering $3 trillion in value last fiscal year, before plummeting this year. The asset class raises concerns for policymakers, according to officials. investor protectionNational security and financial stability

Friday’s recommendations are consistent with what the Biden administration called for before FTX filed for bankruptcy last month. This includes ensuring that the regulation of the “spot” market for cryptocurrencies that don’t meet the definition of a security overseen by the Securities and Exchange Commission.

It also calls on regulators to provide comprehensive supervision for all crypto entities, as well as their affiliates. This would allow regulators to have a better view of the activities of companies that operate in multiple countries and are subject to risk through different subsidiaries.

These steps would require Congress, and possibly foreign policy makers, to take action.

The prospects of legislation progressing in the divided new Congress that convenes next week are uncertain.

President of the Senate Banking Committee

Sherrod Brown

(D., Ohio), a crypto skeptic, didn’t take meaningful steps to rein in the industry in his first two years as head of the Senate panel, but has recently expressed a willingness to work with Ms. Yellen on a bill. In the meantime, Rep.

Patrick McHenry

(R., N.C.), has generally expressed enthusiasm about cryptocurrencies’ potential benefits and reluctance to impose heavy-handed requirements on the industry.

Many lawmakers offered this suggestion crypto-related legislationSome of these were supported by industry in the current Congress. None of them came even close to passing.

The White House hasn’t weighed in on the jurisdictional jump-ball among regulators including the SEC, the Commodity Futures Trading Commission and the Federal Reserve. Each of them claims or imagines authority over certain segments in the crypto market.

As with an earlier crypto report released by the FSOC in October, Friday’s report said large parts of the cryptocurrency industry fall under the jurisdiction of the existing financial regulatory laws and pressed regulators to continue to enforce those laws.

This report is timely as the industry has seen a lot of turmoil since the pandemic. Although the market was largely unregulated, it experienced a boom this year due to rising interest rates and the bankruptcy of some major industry players.

FTX, one of the largest crypto exchangesThe company filed for bankruptcy in the United States after running out of cash and the collapse of a merger with Binance. The firm’s failure marked a sudden fall from grace for

Sam Bankman Fried,

the company’s chief executive who portrayed FTX as a safer crypto exchange to use and cast himself as an ally of regulation.

A September report by the Treasury Department also released emphasized risks to consumersWhile evaluating the practical use of digital tokens, it was necessary to assess their impact on financial stability, rule of law, and financial stability. It demanded agencies like the SEC. rigorously enforce existing regulations in the cryptocurrency market, dealing a blow to the industry’s hopes of getting a more tailored rule set.

Andrew Ackerman may be contacted at andrew.ackerman@wsj.comPaul Kiernan and paul.kiernan@wsj.com