Congress
still
needs
to
pass
legislation
to
address
concerns
the
Financial
Stability
Oversight
Council
(FSOC)
has
about
crypto,
a
new
report
by
the
intragovernmental
group
said
Thursday.
FSOC,
a
financial
stability
watchdog
composed
of
the
heads
of
most
major
U.S.
financial
regulators,
published
its
annual
report
after
one
of
the
group’s
meetings,
taking
a
look
at
the
past
year
in
climate,
banking,
cybersecurity,
artificial
intelligence
and
other
issues.
As
it
has
in
years
past,
crypto
received
a
section.
The
council
is
recommending
that
Congress
pass
legislation
defining
and
addressing
crypto
spot
markets,
as
well
as
stablecoins.
These
are
the
same
recommendations
FSOC
had
at
the
end
of
2022,
the
report
noted.
“The
Council
urges
Congress
to
pass
legislation
that
provides
federal
financial
regulators
with
explicit
rulemaking
authority
over
the
spot
market
for
crypto-assets
that
are
not
securities.
Congress
should
also
pass
legislation
that
would
create
a
comprehensive
prudential
framework
for
stablecoin
issuers
that
would
also
address
the
associated
market
integrity,
investor
and
consumer
protection,
and
payment
risks.”
The
House
of
Representatives
has
two
bills
addressing
these
issues
sitting
before
it,
after
Financial
Services
Committee
Chair
Patrick
McHenry
(R-N.C.)
secured
enough
support
to
move
these
two
bills
out
of
committee.
It’s
unclear
whether
these
bills
will
make
it
to
a
Senate
vote.
While
McHenry
reportedly
tried
to
get
the
bills
into
annual
must-pass
defense
legislation,
Congress
ultimately
did
not
include
any
crypto
provisions
in
this
year’s
National
Defense
Authorization
Act.
But
as
it
did
last
year,
FSOC
said
regulators
may
need
to
act
if
there
is
no
Confessional
action.
“The
Council
remains
prepared
to
consider
steps
available
to
it
to
address
risks
related
to
stablecoins
in
the
event
comprehensive
legislation
is
not
enacted,”
the
report
said.
Vulnerability
concerns
Thursday’s
report
flagged
vulnerabilities
like
price
volatility,
a
huge
amount
of
leverage
within
the
industry,
cybersecurity
and
other
risks
to
investors
and
financial
markets
as
some
of
the
group’s
concerns
around
crypto.
The
report
mentioned
this
year’s
Curve
Finance
hack,
which
saw
the
protocol
lose
$50
million.
Though
Curve
later
regained
73%
of
those
funds,
the
report
said
one
of
the
major
concerns
was
that
the
loans
backed
by
CRV
might
fall
apart
with
the
loss
of
so
much
collateral.
“The
drop
in
CRV’s
price
reportedly
put
over
$100
million
worth
of
loans
taken
out
by
Curve
Finance’s
founder
at
risk
of
being
liquidated
on
other
decentralized
finance
(DeFi)
platforms,”
the
report
said.
“Given
that
DeFi
protocols
sell
underlying
collateral
in
the
market
if
a
user
is
unable
to
maintain
their
position,
platforms
holding
CRV
as
collateral
were
at
risk
of
experiencing
significant
losses
if
the
loans
liquidated
and
the
price
of
CRV
continually
declined.”
The
report
also
continued
to
mention
concerns
about
investor
protections
and
market
integrity,
saying
some
companies
may
be
operating
outside
existing
law.
Stablecoins,
which
have
long
been
a
concern
for
finance
regulators
in
the
U.S.,
received
its
own
subsection
in
the
report.
“if
a
stablecoin
were
to
scale
significantly,
a
run
on
the
stablecoin
could
lead
to
fire
sales
of
the
traditional
assets
backing
the
stablecoin
like
bank
deposits,
MMFs,
Treasury
securities,
and
commercial
markets
is
also
small
relative
to
the
crypto-asset
market
and
the
traditional
financial
system,”
the
report
said
as
one
example.
Another
section
of
the
report
focused
on
nonbank
financial
institutions,
which
are
becoming
increasingly
active
and
must
be
monitored
for
potential
risks,
the
report
said.