A US federal agency said the cryptocurrency market poses a threat to broader financial stability if it continues to grow without more thoughtful oversight and enforcement.
of Financial Stability Oversight Council (FSOC) is chaired by Treasury Secretary Janet Yellen and is tasked with identifying risks and responding to threats to financial stability.
Shootout crypto market
and report The FSOC, released on October 3, noted “relatively limited” integration between cryptocurrencies and legacy markets, but this is happening “rapidly” given the recent rise in popularity of digital assets. I warned you that it could change.
The report lists four specific crypto threats that could spill over and negatively impact the legacy market. they were:
- Lack of controls to prevent execution risk or insufficient oversight of excessive leverage.
- Cryptocurrency prices appear to be speculative and have become highly volatile.
- Some crypto companies “Has a risky business profile and opaque capital and liquidity positions”
- Centralization of “critical services” or vulnerabilities associated with distributed ledger technology can lead to operational risks.
Regarding complying with the existing regulatory structure, FOSC said some cryptocurrency companies are circumventing the regulatory system. In contrast, others actively participated by obtaining crypto-specific charters or licenses.
A misrepresentation concern was raised. federal deposit insurance The degree to which some companies advertise themselves as regulated also gives consumers a false sense of protection.
To address the regulatory gaps, FOSC has decided that securities should be “limited direct Federal regulation. Implementing the regulatory arbitrage process will allow authorities to gain insight and oversee activities, explore vertical integrations that provide direct market access to retail consumers, and expose practices such as automated clearing. increase.
SEC Comments on FSOC Report
SEC Chairman Gary Gensler issued a statement supporting the FSOC findings and recommendations.
In addition, Gensler also addressed some of the points raised by the FSOC, particularly the operational risks posed by centralized service providers and how it contradicts how the industry itself is portrayed.
“This market is not very decentralized. We can see that there are now large and concentrated intermediaries in the industry, which in other securities markets are usually isolated from each other. It is often an amalgamation of available services.”
Similarly, the SEC Chairman believes that most crypto tokens are securities and fall under the jurisdiction of the SEC. Gensler said:
“Of the approximately 10,000 tokens in the cryptocurrency market, I believe the majority are securities. The offering and sale of these cryptographic security tokens is subject to securities laws.”
He added that “this market” cannot undermine the broader financial system.
