Thank you for inviting me to join you today to talk about recent reports led by Treasury as part of President Biden’s Executive Order on Ensuring Responsible Development in Digital Assets. My remarks today will focus primarily on how digital assets could alter the future money and payments system in the US, and recommendations in the report to prepare for that. But I will first take a few minutes to talk about the here-and-now of digital assets—how they are currently being used and their effects on consumers, investors, and businesses. And next month, the Financial Stability Oversight Council will issue a report on the financial stability risks of digital assets and regulatory gaps.
For the report titled “Crypto-assets: Implications for Consumers, Investors, and Businesses,” the charge was to focus specifically on current use cases for crypto assets, and especially use by and effects on more vulnerable communities. A main finding of the report is that the most prevalent current uses of crypto-assets are for trading, lending, and borrowing. Use of crypto-assets to deliver other types of financial services, like payments at lower cost, higher speed, and without intermediaries, has not materialized yet.
The report finds significant areas of concern. There are frequent instances of operational failures, market manipulation, frauds, thefts, and scams. Consumers and investors are exposed to improper conduct in crypto-assets for a variety of reasons, including a lack of transparency, non-compliance with existing regulations, as well as that crypto-assets have novel and rapidly developing applications. In addition, while the data for populations vulnerable to disparate impacts remains limited, available evidence suggests that crypto-asset products may present heightened risks to these groups, and little evidence of financial inclusion benefits.
Based on these findings, our first recommendation is for agencies to continue to aggressively pursue their enforcement efforts focused on the crypto-asset sector. A second recommendation is for agencies to clarify their existing authorities to ensure they are applied appropriately to crypto-assets, and for regulators to work cooperatively so they can be more comprehensive and increase compliance with existing rules. These recommendations recognize that agencies — including the CFPB, SEC, CFTC, and DOJ – have been hard at work to address this unlawful activity and to protect consumers and investors. Agencies have expanded and prioritized resources – the SEC, for example, has brought more than 80 cases. The recommendations also reflect a principle that financial services, whether provided by crypto technology or traditional financial firms, should be subject to the same rules if they pose the same risks. That is, rules should be technology neutral.
The report also recommends that agencies work together, through the Financial Literacy and Education Commission, to improve the quality of information about crypto-assets for consumers, investors, and businesses. …….