On November 30, Senate Banking Committee Chairman Sherrod Brown (D-OH) sent a letter to Treasury Secretary Janet Yellen requesting that she coordinate with other financial regulators to further work on the recommendations from the Financial Stability Oversight Council Report on Digital Asset Financial Stability Risks and Regulation (FSOC report), which we previously discussed here. Specifically, Senator Brown advocates for the development of legislation that would provide authority for federal regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities. The letter comes in the wake of the collapse of FTX.com, a Bahamas-based crypto exchange, which filed for bankruptcy last month.
The crypto giant was valued at $32 billion, yet now seeks court protection. Over a three-day span, FTX customers attempted to withdraw billions of dollars in deposits stored on the platform, but FTX was unable to fulfill those requests and ultimately spiraled into insolvency. FTX CEO, Sam Bankman-Fried, stepped down the same day as the bankruptcy filing and was replaced by John J. Ray III, who previously oversaw Enron’s bankruptcy proceedings.
In his letter, Senator Brown argues that FTX’s collapse, “highlights many of the troubling risks in the crypto asset markets discussed in the FSOC report,” including gaps in the regulation of crypto asset activities such as vertically integrated market structures and platforms and an overdependence on leverage. Senator Brown contends that FTX’s connections to other crypto firms, “likely deepened its losses and continue to send shock waves to other entities.”
Senator Brown called on Secretary Yellen for her, “input and partnership to develop a broad framework for all crypto assets.” Senator Brown ended his letter with the age-old adage that, “if it seems too good to be true, it probably is.”
We expect Congress to hold more hearings on the fall of FTX and the risks of cryptocurrency generally in 2023 as it looks to move forward with proposed legislation to regulate entities in the cryptocurrency ecosystem.