Treasury urges SEC, CFTC to crack down on crypto industry in sweeping new reports
The US Treasury Department warns in three new reports that cryptocurrencies pose a meaningful risk to consumers, investors and businesses if they are not properly regulated.
The government is also recommended to move forward with work on a digital central bank currency, but stopped short of recommending one.
The reports call on the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to “aggressively” pursue investigations and enforcement actions against non-compliant crypto companies.
Treasury is also urging the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) to redouble their efforts to monitor consumer complaints and enforce against unfair, deceptive or abusive practices.
“At the same time, if these risks are mitigated, digital assets and other emerging technologies can offer significant opportunities,” Treasury Secretary Janet Yellen said.
One of the reports claims that customers were regularly misled about crypto’s features and expected returns, and that non-compliance with regulations is widespread. One study found that nearly a quarter of digital coin offerings had disclosure or transparency issues, including plagiarized documents or false promises of guaranteed returns.
‘Ultimate Urgency’
The second of Treasury’s three reports recommends moving ahead with work on a CBDC, or central bank digital currency, in the event it is determined to be in the national interest. While no decisions have been made to issue a CBDC, the report is intended to help policymakers understand the technical design choices of a CBDC system.
“Consistent with the President’s directive to place the ‘highest urgency’ on research and development of a US central bank digital currency, the administration encourages the Federal Reserve to continue its research and experimentation,” NEC Director Brian Deese said in a statement.
Deese said the White House also launched an interagency task force, including the National Security Council and the Treasury, to support the Fed’s efforts by assessing policy implications of a potential CBDC, particularly for our national security. The group will meet regularly to discuss updates and progress.
Treasury says a CBDC will be considered legal tender and will be convertible one-to-one into reserve balances or fiat currency.
A CBDC would need to clear and settle with finality almost immediately.
The report finds that a US CBDC has the potential to enable a more efficient payment system that increases economic growth and stability, while protecting against cyber risks, safeguarding the privacy of sensitive data and reducing the risk of illicit financial transactions.
The report also finds that a CBDC could help preserve US global economic leadership and support the effectiveness of sanctions. But Treasury finds that a CBDC can also have unintended consequences, including runs on a CBDC during times of stress.
Treasury encourages the Federal Reserve to continue work on a potential CBDC.
Fighting crime
The third report lays out a detailed plan to combat the use of crypto for financial crimes, such as money laundering and terrorist financing.
Treasury recommends strengthening AML/CFT oversight of crypto activities, disrupting illicit actors, expanding dialogue between the public and private sectors, and improving global regulation. The plan also recommends monitoring risks in the crypto sector continuously to identify gaps in regulation.
As part of further research, The Office of Science and Technology Policy is kick-starting crypto research into next-generation cryptography, transaction programmability, cybersecurity and privacy protection, and ways to reduce the environmental impacts of digital assets.
Meanwhile, the Department of Energy, the Environmental Protection Agency and other agencies are being asked to consider tracking the effects of crypto on the environment, develop performance standards and provide local governments with tools and resources to reduce environmental damage.
The White House last week released a climate report on crypto which found that crypto assets consume between 1% and 2% of US electricity each year. The White House also found that crypto-asset activity produces between 0.4% and 0.8% of US greenhouse gas emissions, equivalent to emissions from iron and steel production in the US, according to Alondra Nelson, director of the White House Office of Science and Technology Policy.
“In comparison, the crypto asset industry is expanding rapidly using more electricity and producing more emissions,” Nelson said. “Cryptomining affects local communities with noise pollution, as well as air and water pollution from direct fossil-fired electricity.”
More reports on crypto oversight will come in October from the Treasury.
In October, the Financial Stability Oversight Council, which oversees risks to the financial system, will publish a report discussing the risks digital assets pose to financial stability, identifying regulatory gaps and making recommendations to ensure financial stability.
These reports, the first of several to come, come six months after President Joe Biden issued an executive order directing agencies to study cryptocurrencies and a CBDC, and come up with a government-wide approach to regulating digital assets.
The order laid out a national digital asset policy across priorities, including consumer and investor protection, financial stability, illicit finance, maintaining US leadership in the global financial system, and financial inclusion.
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