Senate Banking chair calls for crypto legislation, asks regulators to weigh in

WASHINGTON — Sen. Sherrod Brown, chair of the Senate Banking Committee, wants to see legislation that would put cryptocurrency activities under the purview of financial regulators.

In a letter to Treasury Secretary Janet Yellen on Wednesday morning, the Ohio Democrat said regulators should have a “comprehensive view of crypto asset entities’ activities” and the ability to supervise them. Such oversight should apply to crypto subsidiary groups, too, he added.

Brown asked for the agencies that make up the Financial Stability Oversight Council, or FSOC, to coordinate with one another to help Congress craft legislation with an eye toward minimizing risks and vulnerabilities related to crypto. 

Senate Banking Committee chair Sherrod Brown, D-Ohio, sent a letter to the Treasury Department and the Financial Stability Oversight Council Wednesday seeking input on a legislation to establish a regulatory framework for cryptocurrency.

Bloomberg News

The letter was prompted by the collapse of the crypto exchange FTX earlier this month, an event that Brown said encapsulates many of the issues in the digital asset space.

“As we continue to learn more details, the failure of this crypto exchange brings to mind the litany of financial firm failures due to the combination of reckless risk taking and misconduct,” Brown wrote. “It is crucial that risks in this area are contained and do not spillover into traditional financial markets and institutions, and we draw the correct lessons regarding customer and investor protection.”

Brown’s letter comes as Washington weighs its options for dealing with cryptocurrencies and stablecoins in the wake of several high-profile collapses this year. 

The demise of FTX, once the second-largest crypto exchange in the world valued at $32 billion, has added urgency to this debate, but has yielded little consensus among lawmakers. Some continue to argue for tighter regulation while others push a free-market approach. 

Banks have pushed for crypto firms, digital banks and financial technology companies that engage in bank-like activities to be kept out of the mainstream financial system unless they are properly regulated. The crypto industry, meanwhile, has argued that entities that do not engage in the full gamut of banking activities should not be regulated like banks.

Brown has long been on the side of a comprehensive regulatory approach to digital assets. He praised the White House’s formation of a working group to research digital assets in March and called for a collaborative approach to policy making in September when the findings of that research were released

Still, the request for agency input on legislation made Wednesday’s letter Brown’s most direct call to action yet. He urged the FSOC groups to revisit the findings of their joint report issued in October and come up with specific recommendations for Congress. 

“As noted in the FSOC Report, single regulatory agencies currently generally do not have a comprehensive view of crypto asset entities’ activities,” Brown wrote. “I look forward to working on such legislation with you and the FSOC agencies.”

Brown also asked regulators to consider specific issues present in the FTX collapse, such as vertical integration and market concentration in the crypto space. 

By requesting input on a fresh bill, Brown’s letter indicates that legislation is unlikely to emerge from the Banking Committee before the end of the lame duck session, thereby pushing crypto regulatory reform off until the next Congress.

In the meantime, Brown called on FSOC agencies to “vigorously enforce” existing laws to address the financial stability risks posed by crypto firms, protect consumers and minimize loopholes created by gaps in regulatory policy.

“By using existing supervisory and regulatory authorities to address current and emerging risks, regulators can take on the significant noncompliance with current law among crypto asset firms and minimize, if not eliminate, the opportunities for regulatory arbitrage,” Brown said.

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