The committee chair cited crypto exchange FTX’s “alarming fraud”, liquidity crunch, and bankruptcy as an example of financial risk Treasury and regulators should address.
Sherrod Brown, chair of the United States Senate Banking Committee, has called on Treasury Secretary Janet Yellen to work with financial regulators and lawmakers on comprehensive crypto legislation “in the wake of FTX’s implosion.”
In a Nov. 30 letter to Yellen, Brown requested the Treasury Secretary coordinate with regulators to address crypto based on recommendations from the Financial Stability Oversight Committee, or FSOC. The committee chair cited crypto exchange FTX’s “alarming fraud”, liquidity crunch, and bankruptcy as an example of financial risk that should not “spillover into traditional financial markets and institutions.”
“I ask that you coordinate with the other financial regulators to further work on the recommendations from the FSOC Report, including the development of legislation that would create authorities for regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities,” said Brown. “As noted in the FSOC Report, single regulatory agencies currently generally do not have a comprehensive view of crypto asset entities’ activities.”
“As the FTX failure makes clear, given crypto asset entities’ broad use of proprietary crypto tokens combined with opaque financial arrangements and the reliance on arbitrary valuation and data sources, the financial regulatory agencies should continue to find ways to enhance entity and crypto asset disclosures, market integrity, and transparency.”
In October, the FSOC released a report in accordance with U.S. President Joe Biden’s executive order on crypto, aimed at exploring potential regulatory gaps and financial stability risks of digital assets. The council recommended lawmakers pass legislation to determine which “rulemaking authority” will be responsible for regulating parts of the crypto spot market — i.e. the Securities and Exchange Commission or the Commodity Futures Trading Commission. At the time, Yellen said the report provided “a strong foundation for policymakers” but did not offer a timeline for action.
Brown’s response was the latest from U.S. lawmakers jumping in to offer their two cents on FTX’s bankruptcy and possible regulatory and legal action. On Nov. 23, Senators Elizabeth Warren and Sheldon Whitehouse penned a letter to the Justice Department to potentially prosecute individuals involved in wrongdoing at FTX as well as investigate the exchange’s downfall with the “utmost scrutiny.” Committees in both the House of Representatives and the Senate will be conducting separate hearings in December to address the collapse of the crypto exchange.