A new report commissioned by the Financial Services Committee and conducted by the United States Government Accountability Office (GAO) has found that there is a significant regulatory gap for crypto assets and has suggested a whole-of-government approach to addressing it. The report states that no federal financial regulator has comprehensive authority to regulate the spot market for crypto assets that are not securities. To address this, the Treasury’s Financial Stability Oversight Council has been tasked to lead the development of a unified approach to crypto asset oversight.
The GAO is particularly concerned about the regulatory gap for stablecoins, noting that the U.S. financial regulatory structure is fragmented, particularly with regard to standards surrounding reserve levels and public disclosure of reserves. The report argues that there is a need for regular audits of and public disclosures of reserve assets and audit results, as well as a legal framework regarding redemption rights.
The report also notes that as decentralized finance (DeFi) has grown in market size, so too has its risk to the crypto economy and broader macro market. An absence of intermediaries in DeFi raises regulatory concerns about compliance and consumer protection, the report argues, and as these services become more interconnected and decentralized, the risks, including financial shocks and illicit finance, escalate.
The report recommends that major U.S. financial regulators – the Consumer Financial Protection Bureau (CFPB), the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System, the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC) – should jointly establish or adapt an existing formal coordination mechanism. This collaborative mechanism would be used to collectively identify and respond in a timely manner to the risks posed by blockchain-related products and services.
The NCUA agreed with the recommendations made to them, while other regulators neither agreed nor disagreed with the recommendations, but noted existing coordination efforts through various forums.
A formal coordination mechanism for addressing blockchain-related risks, which could establish processes or time frames for responding to risks, could help federal financial regulators collectively identify risks and develop timely and appropriate responses, the report reads.