Yellen Clarifies FSOC's Role in Crypto Regulation

US Secretary of the Treasury Janet Yellen stated that the Treasury is not responsible for 'quarterbacking' between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) regarding their opposing positions on crypto regulation. Yellen made this statement during a July 9 hearing before the House Financial Services Committee.

House Financial Services Committee Chairman French Hill raised concerns during the hearing. Hill noted that the SEC and CFTC have taken opposing legal positions in federal court concerning cryptocurrency.

He asked if the Treasury's Financial Stability Oversight Council (FSOC) is working to unify the two regulators. Hill remarked that the council is 'supposed to quarterback for financial risk.' However, Yellen disagreed, stating:

"It's not the job of the Financial Stability Oversight Council to adjudicate."

Yellen highlighted that the Treasury had published a report on crypto risks. This report partly addresses the risks arising from a lack of agreement between regulators.

Earlier in her testimony, Yellen assured Chairman Hill that she remains committed to achieving a regulatory framework for digital assets and hopes that these efforts will ' reach a reasonable conclusion.'

Addressing Crypto Regulation Nuances

During the hearing, Yellen also responded to various questions related to crypto. Congressman Mike Flood inquired whether decentralized trading protocols require different regulatory approaches than centralized services.

Yellen noted that the SEC and CFTC are currently examining this issue. She added that some matters might also fall under the regulatory umbrella of banking agencies.

Congressman Flood further questioned whether SEC rulemaking could limit custodial options for crypto. He asked if a limited number of approved custodians available to registered investment advisors (RIAs) for Bitcoin ETFs would introduce concentrated risk.

Yellen acknowledged that this trend could pose a 'potential' risk but refrained from providing a definitive answer without more details.

Global Concerns and Sanctions Evasion

The hearing touched on international issues in addition to domestic regulatory concerns. Congressman Brad Sherman commented on the Russian central bank's plans to bypass Western sanctions using cryptocurrency.

Yellen responded that the Treasury is 'very attentive' to using crypto and stablecoins. However, she does not believe Russia's activities in this area are substantial.

Yellen's statements underscore the complex and evolving nature of crypto regulation. The ongoing debate between major regulatory bodies like the SEC and CFTC reflects the broader challenges in creating a unified framework.

As Yellen clarified, the Treasury's role is to highlight risks and facilitate discussions rather than adjudicate between differing regulatory perspectives.