Crypto needs more rules and better enforcement, regulators warn

Regulators are also calling for new authority that would give Washington greater visibility across the entire crypto business, including the ability to look at disparate, seemingly disconnected entities to better understand risks and conflicts. The report noted that “Crypto-asset companies do not have a consistent or comprehensive regulatory framework and may engage in regulatory arbitrage.”

The report urges lawmakers to create new rules that address how crypto exchanges and platforms expand, noting that many add services by acquiring intermediaries without considering conflicts and limits on business overlap that exist in traditional finance, increasing stability risks and potential harm investors.

The report noted that certain characteristics of crypto have “acutely amplified instability” in the blockchain ecosystem, including a lack of basic risk controls to protect against runs, excessive availability of leverage, and prices that fluctuate rapidly and “appear to be driven primarily by speculation rather than based on current basic economic usage cases.” Regulators also fear that risky interconnections between crypto companies and a few concentrated providers of key services undermine the blockchain’s seemingly decentralized nature.

“These vulnerabilities can be attributed in part to the choices made by market participants, including issuers of cryptoassets and platforms, to not implement or refuse to implement appropriate risk controls, ensure effective governance or take other available steps that can address the risks to the financial stability of their activities », the reports say.

Treasury Secretary Janet L. Yellen, who chairs the panel, said in a statement that the report “provides a strong foundation for policymakers as we work to reduce the risks to financial stability of digital assets while realizing the potential benefits of innovation.” Officials hope the publication will serve as a guide for lawmakers and regulators as they develop a more comprehensive regulatory framework for crypto markets.

The government, unlike the crypto industry, does not tend to move quickly, but the report, which outlines both general principles and specific remedies, is a significant step, industry observers said.

In it, FSOC recognizes the increasingly centralized nature of an industry that promotes decentralization and provides some of the clarity blockchain companies have been clamoring for, said Eswar Prasad, a Cornell University professor and author of “The Future of Money,” who got involved. with regulators when compiling the report. – It certainly brings us forward.