U.S. Treasury Secretary Janet Yellen is set to address the House Financial Services Committee, where she will emphasize the risks associated with cryptocurrency platforms and stablecoins.
In her prepared testimony, Yellen, who leads the Financial Stability Oversight Council (FSOC), a group of federal financial regulators responsible for monitoring the stability of the financial system, highlighted the urgent need for congressional action in the cryptocurrency space.
Yellen’s concerns come in the wake of her previous comparison of the now-bankrupt cryptocurrency exchange FTX to the “Lehman moment” for crypto. She drew parallels between the collapse of financial giant Lehman Brothers in 2008, which contributed to the global financial crisis, and the potential systemic risks posed by certain aspects of the cryptocurrency industry.
FSOC’s focus on digital assets and associated risks
In her testimony, Yellen stated that the FSOC remains committed to addressing the challenges posed by digital assets and the related risks they bring. These risks include the potential for runs on crypto-asset platforms, the volatility of cryptocurrency prices, and the proliferation of platforms operating outside or in violation of applicable laws and regulations.
The FSOC’s 2023 annual report, released in December, emphasized the volatility of cryptocurrency prices and the interconnectedness of the digital asset industry. These concerns have further underscored the need for regulatory oversight and legislative action in the cryptocurrency space.
The call for legislative action
Yellen’s testimony urged Congress to take action by passing legislation to address the growing risks in the cryptocurrency market. Lawmakers have already begun working on several bills, including one focused specifically on stablecoins and another addressing broader market structure concerns.
Additionally, legislation targeting anti-money laundering measures has been introduced, highlighting the multifaceted regulatory challenges posed by cryptocurrencies.
Controversy surrounding SAB 121
In addition to cryptocurrency, the House Financial Services Committee is expected to discuss the controversial SAB 121, a staff bulletin issued by the Securities and Exchange Commission (SEC) in March 2022.
This bulletin requires firms that custody cryptocurrencies to record customer crypto holdings as liabilities on their balance sheets.
The bulletin has faced significant opposition from crypto advocates, with some labeling it “illogical.” Critics argue that it should have been introduced in the form of an official rule rather than a staff bulletin. However, SEC Chair Gary Gensler has defended SAB 121, citing concerns for customer protection in bankruptcy court proceedings.
Efforts to block SAB 121
In response to the controversy surrounding SAB 121, Senator Cynthia Lummis (R-Wyo.) and Representatives Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.) recently introduced a joint resolution aimed at blocking the bulletin. Both Flood and Nickel are members of the House Financial Services Committee, where the resolution will be considered.
The introduction of this resolution highlights the ongoing debate within Congress over the appropriate regulatory framework for cryptocurrencies and the differing opinions on how to address issues like custody and reporting standards.
