In a recent report, the Financial Stability Oversight Council (FSCO) which is a financial stability watchdog recently held a meeting where it discussed pressing issues concerning the multiple financial risks that surround investment in the fast-rising cryptocurrency innovation which it had earlier pointed out last year. In addition, during the meeting, the council called for legislation to mitigate the effect of these crypto-related risks.
According to a recent report by the Financial Stability Oversight Council, the United States Congress needs to draft and implement legislation to address the issues the intergovernmental group raised concerning cryptocurrency-related risks. The report revealed that the FSOC, which is a financial stability agency having major financial regulators in Nigeria as members, recently published its annual report where it discussed the progression of cybersecurity, climate, artificial intelligence, banking, and other related topics for the past year.
In the meeting which was more focused on cryptocurrency, the council reiterated last year’s recommendations which called on the US Congress to adopt a regulatory framework to address the risks in the cryptocurrency spots market and stablecoins.
FSCO Called For Two Bills
Furthermore, the group pointed out that Congress needs to introduce a law that clearly defines the rulemaking authority of federal financial regulators on the spot markets for non-security crypto assets. In addition, the council requested that Congress should also pass another bill that would provide a clear prudential framework to guide stablecoins issuers in order to maintain the integrity of associated markets, payment risks, and customers and investors protection.
According to reports, Patrick McHenry, the chairman of the Financial Service Committee had earlier submitted two bills that aimed to address the FSOC concerns of crypto risks to the United States House of Representatives after securing enough support. However, the bills are still pending approval, and it is yet uncertain if they will be endorsed via Senators’ votes. Furthermore, reports revealed that McHenry tried to ensure the bills were included in the yearly must-pass defense laws, but Congress did not include any crypto-related legislation in the much-anticipated yearly defense act.
Regulators To Act If Congressional Legislation Fails
Meanwhile, the FSOC suggested that if no legislation is not passed to address their concerns, federal regulators should be ready to take necessary legal actions to protect investors against possible risks related to the spot market or stablecoins market.
In the report discussed by the council, crypto vulnerabilities such as excess leverage levels, high price volatility, and cybersecurity to financial markets and investors. The report referenced the Curve Financial hack that occurred earlier this year where about $50 million was stolen in crypto assets. Although Curve Financial reportedly recovered about 73% of the stolen funds, the point of reference was that the loans supported by CRV were excessive and could possibly collapse with the collateral.
Furthermore, reports revealed that the founders of Curve Financial took loans that were worth over $100 million. However, the council pointed out that the drop in the price of Curve Financial’s native token, CRV, could cause the loans to be liquidated on different decentralized finance protocols.
FSCO Talked About Stablecoins Market
They added that if the involved DeFi platforms decide to sell out the underlying collateral should a user fail to uphold their positions, platforms that have CRV tokens as collateral are vulnerable to losing significant funds if the loans are liquidated and CRV’s price declines further.
In the report, the council also emphasized the importance of maintaining customer protection, and integrity of the market as some firms are deemed to be operating with little or no compliance with the existing law. Furthermore, the council talked about stablecoins which had long been on the radar of the financial regulators of the United States. It was asserted that if stablecoins wanted to scale up significantly, runs on the stablecoins could spur massive sales of local assets that backed the stablecoins such as bank deposits. The report also considered commercial markets, Treasury securities, and MMFs, as associates of the cryptocurrency market as well as the traditional financial ecosystem.
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