“Did they just fall asleep at the wheel?” Senators move against regulators in latest crypto hearing
In a Senate Banking Committee hearing on Tuesday, members of Congress called for additional regulation to protect investors and the U.S. financial system from wrongdoing related to the cryptocurrency industry.
In the opening comments, committee chairman Sen. Sherrod Brown (D-OH) industry firms and called for the committee to find common ground to pass coherent crypto legislation.
“These crypto disasters have exposed what many of us already knew,” Brown said. “Digital assets, cryptocurrencies, stablecoins, investment tokens are speculative products driven by unscrupulous companies … putting Americans’ hard-earned money at risk.”
Crypto’s collapse last year put regulators and other industry firms on edge. Now these parties are increasingly at odds.
A wave of actions by US regulators in recent weeks has signaled that state and federal agencies are ramping up enforcement efforts. Already in 2023, the Securities and Exchange Commission has issued four different charges against crypto companies.
Industry insiders, on the other hand, have repeatedly argued that US regulatory jurisdiction over cryptocurrencies and other digital assets remains unclear, advocating a preference for oversight by the Commodities and Futures Trading Commission (CFTC).
In the past week, both Paxos and Coinbase have said they will defend their businesses in court against the SEC, if necessary.
Republican members of the committee, Sens. Tim Scott (R-SC) and Thom Tillis (R-NC), blamed the SEC itself. Scott said the agency failed to take “meaningful preventive action” before crypto took off through the second half of last year.
“If they have the tools they need. Were they just asleep at the wheel? … Why aren’t they here to tell us what they need? We’d like to have Chairman Gensler testify sooner, much sooner than later,” Scott said.
Senator Elizabeth Warren (D-MA) also drove home the illegal use of crypto, pointing to the more than $20 billion in illegal flows that moved through the crypto market last year.
She took particular issue with decentralized financial, or DeFi, offerings, which are often more complicated to regulate than centralized firms.
“They want a giant loophole written into the law so they can launder money when a drug lord or a terrorist pays them to do it,” Warren said.
“The rules should be simple. The same type of transactions, the same type of risk requires the same type of rules,” Warren said, calling for more robust anti-money laundering requirements. Warren plans to reintroduce a bill with Sen. Roger Marshall (R-KS) to crack down on crypto money laundering.
‘The status quo is simply unsustainable’
Lee Reiners, a policy director at the Duke Financial Economics Center who testified before the committee, said before Congress that crypto platforms must separate customer and company assets. He also said banking regulators need additional guidance to prevent potential financial contagion among crypto firms from spreading into the banking system.
Federal agencies first set the pace in Washington for crypto this year when the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency issued a joint statement warning about the risks banks are taking on. affecting crypto activities.
“Banking agencies have broad legal authority to prohibit banks from engaging in any activity that cannot be conducted in a safe and sound manner,” Reiners said, arguing that regulators could provide additional guidance on what crypto activities banks should and should not engage in. can do.
Reiners, a proponent of limiting banking system access for crypto firms, also emphasized the legal dilemma of doing so.
“As long as crypto is legal, you know, then these firms have the right to bank. So I think the challenge is where is the line drawn?” he added.
“Whatever Congress decides to do, the status quo is simply unsustainable,” he added.
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