U.S. Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, has widely been seen as the linchpin of legislation to set up oversight of the cryptocurrency industry. While his crypto suspicions have been clear in hearings, his plans for specific bills remained quiet until now.
Brown sent a letter Wednesday to U.S. Treasury Secretary Janet Yellen, for the first time outlining his willingness to work on legislation and the broad strokes of what that legislation should look like – including that the approach must be comprehensive and rope in all the relevant financial agencies.
“Single regulatory agencies currently generally do not have a comprehensive view of crypto asset entities’ activities,” Brown argued in his letter, which highlighted the findings of a report from the Financial Stability Oversight Council led by Yellen, including its recommendation for legislation that would “create authorities for regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto-asset entities.”
He said he wants to “work on such legislation,” especially in light of the collapse of crypto exchange FTX that destroyed many Americans’ investments.
While the work on legislation is underway, he said U.S. financial agencies should keep up vigorous enforcement actions and “take on the significant noncompliance with current law among crypto-asset firms.”
Brown’s remarks, however, don't reveal his views on existing legislative efforts. His position on a bill to regulate stablecoins, for instance, will be key, because such a bill – like those being negotiated in the House Financial Services Committee and by other lawmakers on his committee – will likely need his support. Brown hasn’t openly shared his view on more comprehensive efforts, such as the proposals from leading members of the Senate Agriculture Committee.
Meanwhile, at his committee’s hearing on nominations for Federal Deposit Insurance Corp. board members on Wednesday, Brown again made his crypto suspicions clear.
“We can't let thousands of risky and volatile assets that are used only for speculation and sanctions evasion into our banking system, and we know that it’s a national security issue,” Brown said.
Yellen said at a separate event on Wednesday that the drama over FTX proves that this industry needs to have strong rules, “and it doesn’t.”
“To the extent that the crypto world could deliver faster, cheaper, safer transactions, we should be open to financial innovation,” she said at the New York Times' Dealbook Summit in New York. “That said, that's not what most of it has been about.”
Brown asked the nominees at Wednesday’s hearing, “Is there any public purpose to crypto right now?”
“Right now, most of the public promise of crypto is for the future,” said Travis Hill, a Republican who President Joe Biden nominated to be the FDIC board’s vice chairman. “As of today, most of that is theoretical and not part of everyday life.”
For his part, another Republican board nominee, Jonathan McKernan, suggested that the FDIC – one of the three primary U.S. banking regulators – may not be as relevant as the Securities and Exchange Commission and the Commodity Futures Trading Commission for directing crypto oversight.
“There are some significant open questions as to what is a permissible activity when it comes to crypto at a bank,” McKernan said. “I think there is a role for the market regulators to play in continuing to define the rules of the road in this space, and the banks will need to similarly comply with that law."
The hearing otherwise revealed a position solidifying among some Democrats on digital assets. Apart from Brown’s views, other Democrats also argued against exposing the banking system to cryptocurrency risks.
“I don't think crypto passes the smell test,” said Sen. Jon Tester (D-Mont.). “I don't want to give it credibility by regulation.”
Sen. Elizabeth Warren (D-Mass.) may have been the hearing’s loudest anti-crypto voice, though.
“If the crypto boosters had gotten their wish and a bunch of banks that the FDIC insures were all-in on crypto – for example, holding FTX’s tokens on their balance sheets or accepting crypto tokens as collateral for loans – would our banking system be less safe than it is today?"
“I would think so,” said Martin Gruenberg, the FDIC’s acting chairman who is nominated to again be its chairman. “The failure of those firms was really limited to the crypto space and ended up not impacting the insured banking system.”
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