'Were they just asleep at the wheel?' Senators rail against regulators in latest crypto hearing
In a Tuesday Senate Banking Committee hearing, members of Congress called for further regulation to protect investors and the U.S. financial system from failures related to the cryptocurrency industry.
In opening remarks, Committee Chair Sen. Sherrod Brown (D-OH) lambasted industry firms and asked for the Committee to find common ground in order to pass cohesive legislation for crypto.
"These crypto catastrophes have exposed what many of us already knew," Brown said. "Digital assets, cryptocurrencies, stablecoins, investment tokens are speculative products run by reckless companies ... that put Americans' hard earned money at risk."
Crypto's collapse last year put regulators and other industry firms on edge. Now, these parties are increasingly at odds.
A wave of actions from U.S. regulators in recent weeks has signaled that state and federal agencies are ramping up enforcement efforts. Already in 2023, the Securities and Exchange Commission has levied four different charges against crypto firms.
Industry insiders, on the other hand, repeatedly have argued that U.S. regulatory jurisdiction over cryptocurrencies and other digital assets remains murky, advocating a preference to be overseen by the Commodities and Futures Trading Commission (CFTC).
In the last week, both Paxos and Coinbase have said they will defend their businesses in court against the SEC, if needed.
Republican members of the Committee, Sens. Tim Scott (R-SC) and Thom Tillis (R-NC), placed blame on the SEC itself. Scott said the agency failed to take "meaningful preemptive action" before crypto's unwinding through the second half of last year.
"If they have the tools they need. Were they just asleep at the wheel? ... Why aren't they here to tell us what they need? We'd be happy to have chairman Gensler testify sooner, much sooner than later," Scott said.
Sen. Elizabeth Warren (D-MA) also drove home the illicit use of crypto, pointing to the more than $20 billion in illicit flows moved through the crypto market last year.
She took particular issue with decentralized finance, or DeFi, offerings, which are often more complicated to regulate than centralized firms.
"They want a giant loophole written into the law so they can launder money whenever a drug lord or a terrorist pays them to do so," Warren said.
"The rules should be simple. The same kind of transaction, same kind of risk needs the same kind of rules" Warren said, calling for more robust anti-money laundering requirements. Warren plans to reintroduce a bill with Sen. Roger Marshall (R-KS) to crack down on crypto money laundering.
'The status quo is simply untenable'
Lee Reiners, a policy director at the Duke Financial Economics Center testifying before the Committee said before congress that crypto platforms need to segregate customer and firm assets. He also said banking regulators need further guidance to prevent any potential financial contagion amongst crypto firms from spreading into the banking system.
Federal agencies first set the tempo in Washington for crypto this year when, on Jan. 3, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency issued a joint statement warning of the risks assumed by banks that touch crypto activities.
"Banking agencies have broad legal authority to prohibit banks from engaging in any activity that can't be conducted in a safe and sound manner," said Reiners, arguing that regulators can provide further guidance of which crypto activities banks should and shouldn't be able to do.
A proponent for restricting banking system access for crypto firms, Reiners also underlined the legal dilemma with doing so.
"As long as crypto is legal, you know, then these firms are entitled to banking services. So I think the challenge is where do you draw the line?" he added.
"Whatever congress decides to do, the status quo is simply untenable," he added.
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