Unregulated Crypto Poses Risks to Financial System, FSOC Report Says

The U.S. Department of the Treasury’s Financial Stability Oversight Council has reported that crypto-asset activities “could pose risks” to the U.S. financial system’s stability, a press release said.

Treasury Secretary Janet Yellen said the Digital Asset Financial Stability Risks and Regulation report “emphasizes the importance of appropriate regulation, including enforcement of existing laws. It is vital that government stakeholders collectively work to make progress on these recommendations.”

The report looks into financial stability risks and regulatory gaps from digital assets.

In addition, a statement from Acting Comptroller of the Currency Michael J. Hsu said he’d been focusing specifically on recommendations from the report on cutting down on regulatory arbitrage.

He said it was important for things like crypto to be regulated in a coordinated way, to avoid problems with “risks that cut across jurisdictional lines” such as an unlevel playing field and more financial risks growing later.

Avoiding those problems with crypto would come down to the council considering “financial stability from a systemwide perspective first and foremost,” he said. According to Hsu, the council should prioritize a federal framework for stablecoin issuers, along with work on regulatory visibility.

“I look forward to continuing to work with all stakeholders on addressing the risks and opportunities presented by digital assets while protecting consumers and businesses and ensuring the continued stability of the US financial system,” he wrote.

PYMNTS wrote of a report from the Federal Reserve Bank of New York called “The Financial Stability Implications of Digital Assets,” saying that digital assets’ volatility has mostly been confined to the digital ecosystem — with little effect on traditional finance systems.

Read more: NY Fed Says Stablecoins May Play Role in ‘Financial Stability Risk’

That said, this could change if the digital asset ecosystem becomes further entwined with the traditional finance system. If there’s more financial services provided, it could increasingly have an influence, too.

The authors of the report have said the digital asset ecosystem will see much of the same vulnerabilities as the traditional system — while having fewer regulations and more risks.