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(Kitco News) – Treasury Secretary Janet Yellen was the latest US regulator to weigh in on the collapse of FTX and its impact on crypto markets and the broader economy.
Yellen released a statement on Wednesday afternoon on ongoing developments in the crypto markets.
“The recent failure of a major cryptocurrency exchange and the resulting unfortunate impact on holders and investors of crypto assets demonstrates the need for more effective oversight of the cryptocurrency markets” , Yellen said.
The Treasury Secretary wrote that over the past year, her department has worked with other regulators to identify risks in crypto markets. “Some of the risks we identified in these reports, including the mixing of client assets, lack of transparency, and conflicts of interest, were at the center of the crypto market tensions seen over the past week,” she said.
The United States has strong investor and consumer protection laws, she wrote, and “where existing regulations apply, they must be rigorously enforced so that the same protections and principles apply to cryptographic assets and services”. She urged Congress “to move quickly to close the regulatory gaps” that the Biden administration has identified.
Yellen also raised the specter of crypto markets potentially impacting the broader financial system. She warned that while “the fallout from events in crypto markets has been limited,” a recent report from the Financial Stability Oversight Council (FSOC) warned that “new interconnections of the traditional financial system and crypto markets cryptography could raise broader financial stability issues.”
The House Financial Services Committee also announced that it had scheduled hearings into the collapse of FTX and its impact on digital assets.
Chair Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) released the joint announcement of a “bipartisan hearing on the collapse of FTX and the broader implications for the asset ecosystem digital”.
They said the committee expects to hear from key players from all the companies involved, including Sam Bankman-Fried, Alameda Research, Binance, and FTX, among others.
“Oversight is one of the most critical functions of Congress and we need to get to the bottom of it for FTX customers and the American people,” McHenry said. “It’s critical that we hold bad actors accountable so that responsible actors can harness technology to build a more inclusive financial system.”
Waters wrote that the collapse and bankruptcy of FTX “caused tremendous harm to over a million users, many of whom were ordinary people who invested their hard-earned savings”, and called the implosion a the exchange of “just one example among many others of cryptocurrency”. rigs that collapsed last year.
Waters also wrote that the United States needs legislative action “to ensure that digital asset entities cannot operate in the shadows outside of strong federal oversight and clear rules of conduct.”
The Treasury and House statements follow earlier comments from the FDIC on the risks of crypto to the US banking system. Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corporation (FDIC), spoke on Tuesday before the Senate Banking Committee on Oversight of Financial Regulators.
Gruenberg said that “cryptoassets carry new and complex risks that […] are difficult to fully assess, especially with the market’s eagerness to quickly launch into these products.
He said that at any given time, the value of crypto assets “is determined in large part by market sentiment,” which has resulted in a “very volatile” market.
“These crypto-asset risks are very real,” Gruenberg said. “After the crypto-asset platform bankruptcies that have occurred this year, there have been many news reports of consumers not being able to access their funds or savings.”
He also said that crypto firms had used “false and misleading statements regarding the availability of federal deposit insurance for their crypto products in violation of the law.”
Gruenberg said the FDIC sent cease-and-desist letters to these firms and also issued a notice in July reminding insured banks of the risks associated with “deposit insurance misrepresentations by crypto companies.” -assets”.
Gruenberg said stablecoins are of particular interest to the FDIC and other regulatory agencies.
He said stablecoins have primarily been used within the crypto ecosystem to facilitate transactions without the need to liquidate them in fiat currencies, and “there has been no demonstration of their value in terms of the wider payment system”, but that their distributed ledger technology may have applications within the payment system in the future.
“This raises a host of important policy questions that will be the focus of all federal financial regulators,” he said.
Gruenberg added that he asked FDIC-supervised banks in April “to notify the FDIC if they are engaging in or planning to engage in any activity related to cryptoassets” so that the FDIC can assess them, and that other federal bank agencies have requested the same.
“Once the FDIC has developed a better understanding of planned or already active activities, we will provide the institution with case-specific supervisory information,” he said. “As the FDIC and other federal banking agencies develop a better collective understanding of the risks associated with these activities, we plan to provide broader guidance to the industry on an interagency basis.”
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