FSOC Claims Government Should Provide Legal Framework for Crypto

FSOC Claims Government Should Provide Legal Framework for Crypto

• The FSOC Council released its Report on Digital Asset Financial Stability Risks and Regulation.
• The report by the FOSC Council mentioned that there were three regulatory gaps.
• The FOSC Council also gave some recommendations to meet the regulatory gaps.

Yesterday, the Financial Stability Oversight Council (FSOC Council) released its report on Digital Asset Financial Stability Risks and Regulation. In the report, FSOC identified the risks and regulatory gaps in crypto asset activities.

The Council voted to approve the report in response to Section 6 of US President Joe Biden’s Executive Order 14067, “Ensuring Responsible Development of Digital Assets.”

Additionally, the Fact Sheet produced by the FOSC Council mentioned that three regulatory gaps were found in regulating crypto assets.

First, the spot markets for crypto-assets that are not securities are subject to limited direct federal regulation. As a result, those markets may not feature robust rules and regulations designed to ensure orderly and transparent trading, prevent conflicts of interest and market manipulation, and protect investors and the economy more broadly.

Secondly, crypto-asset businesses do not have a consistent or comprehensive regulatory framework and can engage in regulatory arbitrage. And finally, crypto-asset trading platforms have offered retail customers direct access to markets by vertically integrating the services provided by intermediaries such as broker-dealers or futures commission merchants.

According to the Secretary of the Treasury, Janet L. Yellen’s statement:

The report also identifies a number of material gaps in current regulations, and recommendations to address these gaps. Some of these recommendations are focused on actions that Council member agencies can take with existing authorities. Others require Congress to provide new authorities.

Some of the recommendations given by the FOSC Council to address the regulatory gaps include the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for crypto-assets that are not securities, steps to address regulatory arbitrage including coordination, legislation regarding risks posed by stablecoins, and legislation relating to regulators’ authorities, and the study of potential vertical integration by crypto-asset firms.

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