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The Financial Stability Oversight Council also asked Congress to pass a law for increasing the transparency of crypto projects and allow regulators to effectively coordinate across different jurisdictions over crypto businesses.
The crypto winter of 2022 has forced regulatory bodies across the globe to fast-track rules and legislation for the working of digital assets. A committee of senior US regulators now wants Congress to pass laws that will enable the direct oversight of cryptocurrencies along with the comprehensive regulation of stablecoins.
The Financial Stability Oversight Council also asked Congress to pass a law for increasing the transparency of crypto projects. This will allow the regulators across different jurisdictions to better coordinate and understand businesses and crypto markets.
The report by the Council has identified three major gaps in the regulatory oversight of digital assets.
- Spot Market for Digital assets not considered securities. This includes cryptocurrencies like Bitcoin and Ethereum.
- Regulatory Arbitrage due to the complexity of digital assets and crypto businesses which can fall into multiple regulatory jurisdictions.
- Vertical integration of trading platform that gives more direct access to the market.
The Financial Stability Oversight Council has also singled-out events such as the bankruptcy of the crypto hedge fund Three Arrows Capital, as well as the collapse of TerraUSD, pointing to them as instability in the crypto sector. The report also reads:
“The Council finds that crypto-asset activities could pose risks to the stability of the US financial system if their interconnections with the traditional financial system or their overall scale were to grow without being paired with appropriate regulation, including enforcement of the existing regulatory structure”.
US Congress on Cryptocurrencies
The US congress already started its work on the spot market and stablecoin legislation earlier this year. One of the officials from the Biden administration said that they are currently not endorsing specific bills to meet tier goals. However, these reports could boost momentum for existing efforts.
Currently, the US CFTC holds the power of overlooking the crypto futures and derivatives market. However, they don’t have a say in the spot market. SEC Chair Gary Gensler said that multiple regulators focused on crypto could undermine oversight efforts. During the FSOC meeting, Gensler said:
“I look forward to working with Congress to achieve the public policy goals as laid out in the report, consistent with maintaining regulation to crypto security tokens and related intermediaries at the SEC. I hope that we don’t inadvertently undermine securities law, which underlie the $100 trillion capital market.”
The report notes that regulators will need to be more proactive in enforcing current laws to directly oversee crypto-related activities and businesses.