A report titled Digital Asset Financial Stability Risks and Regulation was published by the Financial Stability Oversight Council. They decided to approve the report in order to give policymakers a strong platform on which to reduce the dangers that digital assets pose to the financial system.
US Treasury addresses crypto’s regulatory holes and stability risks.
The research aims to address the regulatory loopholes in the industry as well as the risks to financial stability posed by cryptocurrencies. The study, according to Secretary of State Janet Yellen, is a crucial addition to the various studies that the Treasury and its collaborators have produced in accordance with President Joe Biden’s executive order.
The US Treasury stated in the study that because of their relationship to the established financial system and the fact that they are mostly unregulated, cryptocurrency operations represent a risk to the stability of the US financial system.The market for cryptocurrencies has expanded dramatically during the previous year, according to the research. Although there was not much of a connection between the regular banking system and the cryptocurrency market, it has the potential to grow significantly.
Additionally, cryptocurrency social trading platforms can expand the services they offer. These platforms can provide leveraged trading and asset custody services to ordinary investors and conventional financial institutions. Consumers can become more exposed to cryptocurrency-related behaviours.The crypto asset ecosystem is deemed to have flaws, according to the US Treasury. Instead of being driven by basic use cases, cryptocurrency appeared to be driven by speculation. Furthermore, prices have consistently seen sharp reductions.
Despite the sector’s efforts to portray itself as distributed, there was still the issue of the concentration of critical services. Distributed ledger technology vulnerabilities were also increasing. The decisions taken by market participants like crypto asset issuers and platforms may be to blame for such vulnerabilities.
implementing the current regulatory system.
The US Treasury also pointed out that the majority of the nonbanking businesses in the cryptocurrency ecosystem had touted their compliance with regulations. However, these businesses are primarily governed by anti-money laundering and consumer protection legislation, which do not provide a comprehensive framework for reducing financial sector vulnerabilities.Adhering to and enforcing the current regulatory framework was one of the key measures that needed to be taken in order to govern the crypto market. Additionally, the sellers and buyers of various crypto assets broke both federal and state securities laws.
Regulators have already taken enforcement measures to address non-compliance with the applicable regulations. Furthermore, it was illegal to make misleading claims regarding a product’s eligibility for federal deposit insurance, but doing so deceived buyers into believing they were protected by the government.The paper also points out that although the regulatory framework for digital assets had certain flaws, it nevertheless encompassed a significant portion of the crypto industry. First, just a few federal restrictions applied to crypto assets that were not classified as securities.
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