FSOC Still Worried About Stablecoins

The Financial Stability Oversight Council released its 2024 annual report on Friday, covering a range of risks and concerns within the U.S. and global financial systems. As has been the case in previous years, the report highlighted the role of the stablecoin and digital asset sectors more broadly, but did not suggest that the FSOC would take concrete steps to curb these concerns.

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narrative

The Financial Stability Oversight Council, comprised of heads of U.S. financial institutions, warned in its annual report that uncontrolled stablecoin growth could be problematic for the U.S. and global financial systems.

Why is it important?

The Financial Stability Oversight Council is tasked with ensuring financial stability in the United States and has been asking Congress to pass legislation regarding cryptocurrency markets for several years. The 2024 report once again highlights these concerns.

break it down

Over the past few years, FSOC has warned that stablecoins exist outside any kind of federal regulatory framework and that their collective scale could pose risks to financial stability. Friday’s report once again cited the potential risks. At the same time, like previous reports from FSOC, it urges Congress to pass legislation addressing stablecoins and market structures.

“Stablecoins continue to represent a potential risk to financial stability because they are highly vulnerable in the absence of appropriate risk management standards,” the report said. “These execution risks are amplified by issues related to market concentration and market opacity.”

The report cited Tether’s USDT, which accounts for about 70% of the overall global stablecoin market, as one of the issues regulators should pay attention to.

The lack of any kind of federal regulatory framework is likewise an ongoing concern, the report said. Some states have frameworks for stablecoins, but these are not sufficient for the FSOC’s concerns.

“While some companies are subject to state-level oversight that requires regular reporting, many provide limited, verifiable information about their holdings and reserve management practices,” the report said.

FSOC has warned over the past several years that it may have to do everything possible if Congress fails to act, but it’s unclear to what extent it can actually do so. FSOC is expected to form a new regulatory body in the coming months.

“Furthermore, many cryptocurrency market companies and issuers do not or are not complying with the U.S. financial regulatory framework,” the report said. “Therefore, cryptocurrency spot markets may continue to experience significant fraud and manipulation. The Committee recommends that Congress pass legislation to provide federal financial regulators with explicit rulemaking authority for cryptocurrency spot markets, rather than securities. do.”

“We have also addressed new risks posed by significant technological change,” Treasury Secretary Janet Yellen said in a prepared statement. “Digital assets and artificial intelligence not only bring potential benefits such as efficiency, but they also bring financial risks, cyber risks, and risks from third-party service providers. The Commission recommends a comprehensive federal prudential framework for stablecoin issuers and legislation. We continue to call for legislation to create crypto assets that address the risks we have identified.”

wednesday

• 15:00 UTC (10:00 am ET) The House Financial Services Committee held a hearing on technology and finance that served as a kind of swan song for outgoing Committee Chairman Patrick McHenry, R.N.C.

• (Bloomberg) Bloomberg has a list of stories it wants the team to write, and what it really shows is that there’s been a lot of good journalism this year.
• (The Verge) President Yoon Seok-yeol declared martial law earlier this week. This continued for several hours after opposition lawmakers literally scaled the fence amid mass protests against the announcement of an end to the levy.

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