US Treasury urges new laws to address gaps in crypto regulation

Oct 3 (Reuters) – The Financial Stability Oversight Council (FSOC), a U.S. regulatory panel made up of top financial regulators, recommended on Monday that Congress pass legislation addressing risks digital assets pose to the financial system, including bills to strengthen oversight of crypto spot markets and stablecoins.

In a report following US President Joe Biden’s executive order this year “to ensure the responsible development of digital assets,” the panel identified three gaps in cryptocurrency regulation: limited oversight of the spot market for non-securities tokens; opportunities for regulatory arbitrage, or taking advantage of favorable regulations; and whether crypto firms should be allowed to integrate more services traditionally provided by intermediaries, such as brokers and clearing houses.

The report was released after an FSOC meeting on Monday.

In a statement, Treasury Secretary Janet Yellen said 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.”

Although the FSOC has previously urged Congress to regulate stablecoin issuers like banks, Monday’s report included several new recommendations for lawmakers, including that they create a federal framework for stablecoin issuers to address market integrity and consumer protection.

FSOC’s report follows a list of others released last month in connection with White House executive orders. In September, the Biden administration published a series of reports recommending that US government agencies double down on enforcement of the digital asset sector and identify regulatory gaps.

It remains unclear when Congress might pass crypto-related legislation, although several bills have been introduced to address stablecoins and regulation of digital goods.

The FSOC report also suggested that Congress pass a bill to grant rulemaking authority to federal financial regulators over the spot market for non-securities cryptocurrencies to address conflicts of interest and abusive trading practices.

Lawmakers should also consider legislation that would give regulators the authority to monitor the activities of crypto firms’ affiliates and subsidiaries, which the FSOC said could address regulatory arbitrage, the report said.

Reporting by Hannah Lang in Washington; Editing by Josie Kao

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