Wall Street Watchdogs Want More Power to Police Bitcoin

by James · October 4, 2022

The top US financial regulators want Congress to give them new powers to directly monitor trading in Bitcoin, the world’s largest cryptocurrency.

In a Monday report, the heads of the Federal Reserve, the Treasury Department and other leading financial watchdogs said the government has limited ability to regulate crypto assets not covered by securities laws. Although many tokens fall under the US Securities and Exchange Commission’s rules, some, like Bitcoin, are not directly under the jurisdiction of any federal agency.

“As a result, these markets may not have robust rules and regulations designed to ensure orderly and transparent trading, to prevent conflicts of interest and market manipulation, and to protect investors and the economy more broadly,” the Financial Stability Oversight Council said. The FSOC also includes the SEC chair and the chair of the Commodity Futures Trading Commission, which are fighting for a bigger part of crypto regulation.

The report is the latest from the Biden administration to call for a more coordinated approach to regulating digital assets after years of patchwork oversight. The SEC claims turf over assets considered securities, the CFTC oversees crypto derivatives and banking regulators also claim some powers.

Congress should also give regulators new powers to weigh in on a range of topics, including conflicts of interest, abusive trade practices, recordkeeping requirements, customer asset segregation and cyber security, the FSOC said in a 100-plus-page report released Monday. Legislation should also give agencies more enforcement and investigative powers, the regulators said.

“Innovation without adequate regulation can result in significant disruption and damage to the financial system,” Treasury Secretary Janet Yellen said during the virtual meeting.

There are several bills in Congress that would give the CFTC the power to oversee Bitcoin and other commodity tokens, but the FSOC report did not signal its support for any specific legislation. These measures have the support of many in the industry because they do not want to be regulated by the SEC, which has tough requirements for investor protection.

The FSOC also recommended that:

Agencies are assessing the impact of plans to give retail clients direct access to markets for digital assets. The CFTC is currently considering a proposal by the US arm of crypto trading giant FTX that would take the middleman out of trading Bitcoin and Ether futures.
Congress creates a regulatory framework for issuers of so-called crypto-stable coins, which are used as a gateway to and exit from traditional money.
Lawmakers give regulators the power to look into the activities of affiliates and subsidiaries of crypto firms.
Congress gives agencies the funding they need to regulate crypto activities.
Lawmakers are giving the Federal Housing Finance Agency and the National Credit Union Administration the authority to take enforcement action against firms that provide crypto-related services to banks.

Allyson Versprille reports for Bloomberg News.