FSOC Meets to Discuss Digital Assets, Climate Risk Committee
The Financial Stability Oversight Council (FSOC) met at the beginning of October to approve the FSOC’s “Report on Digital Asset Financial Stability Risks and Regulation” as well as approve the Council’s Climate-Related Financial Risk Advisory Committee (CFRAC) and appoint the founding members.
The Council’s report on digital assets was prepared in response to President Biden’s Executive Order 14067, “Ensuring Responsible Development of Digital Assets” and outlines the risks and regulatory gaps posed by various digital asset types and provides recommendations to address those risks. The report finds that crypto assets could pose a risk to the stability of financial markets, specifically when looking at the “interconnectedness” cryptocurrency has with broader markets. The report also notes vulnerabilities among stablecoins that are linked to financial markets and speculation from within crypto markets generally. The report places particular emphasis on enforcing existing regulatory frameworks around digital assets and flags nonbanks that are advertising themselves as regulated as an area of focus for regulators. It further identifies three areas where regulatory gaps exist, including: (1) The spot market for crypto assets that are not securities; (2) Crypto asset market businesses that may encounter conflict of interest issues; and (3) Crypto asset trading platforms that propose offering direct access for retail customers. Regarding the report, Treasury Secretary and head of the FSOC, Janet Yellen, remarked that the report “focused on actions that Council member agencies can take with existing authorities” while also recommending Congress provide new authorities to regulators. SEC Chair Gary Gensler noted “in the crypto market there is a lot of noncompliance with the securities laws.” He praised the report and vowed that the SEC staff would ensure “investors in the crypto market get time-tested protections that exist in other securities markets” and that he would also work with policymakers to achieve policy goals in the crypto space.
The FSOC also voted unanimously to approve the CFRAC which will help the FSOC gather information and analysis on climate-related disclosures. The CFRAC’s new members include stakeholders from a wide range of backgrounds, including the financial services industry, non-governmental research institutions, climate-related data and analytics providers, non-profit organizations, and academia.
Click here to read the FSOC’s report on digital asset risks and regulatory recommendations.
Click here to read a Treasury press release highlighting the goals and membership of the CFRAC.