The Senate Committee on Banking, Housing and Urban Affairs has announced that it will hold a full committee hearing titled "Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets" on Feb. 14. U.S. Senator Tim Scott, a Ranking Member on the committee, said that working to develop a framework for the regulation of digital assets is one of his top priorities for this Congressional session.
"Recent years have seen expansive growth in the digital assets industry, including an increasing number of consumers interacting with cryptocurrencies. Several high-profile failures resulted in lost consumer assets, exposed regulatory gaps, and highlighted concerns with illicit finance," Sen. Scott said, according to a press release. "Moving forward, the Committee should work to facilitate a bipartisan regulatory framework."
On Feb. 3, U.S. Sen. Sherrod Brown (D-OH), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, announced that a full Committee hearing on digital assets is scheduled for 10:00 a.m. on Feb. 14.
Former U.S. Sen. Pat Toomey, who was previously the ranking member of the committee, advocated in December for federal authorities to continue investigating the bankruptcy of crypto exchange FTX while also distinguishing between misconduct by an individual and lawful digital asset companies. At a Dec. 14 Committee hearing, Toomey said that Sam Bankman-Fried, the former CEO of FTX, who had recently been arrested, had almost certainly engaged in illegal conduct that led to the bankruptcy of his crypto exchange.
"But I want to underscore a bigger issue here: The wrongful behavior that occurred here is not specific to the underlying asset. What appears to have happened here is a complete breakdown in the handling of those assets," Toomey said. "In our discussion of FTX today, I hope we are able to separate potentially illegal actions from perfectly lawful and innovative cryptocurrencies...with FTX, the problem is not the instruments that were used. The problem was the misuse of customer funds, gross mismanagement, and likely illegal behavior."
Toomey stated that banning cryptocurrencies is not the solution but called instead for Congress to enact regulatory framework to protect consumers.
"Mr. Bankman-Fried may have well committed multiple crimes. The SEC and DOJ will determine that. But let’s remember to distinguish between human failure and the instrument with which the failure occurred. In this case the instrument is software. And the code committed no crime. And while Sam Bankman-Fried very well may have, it is very important we do not convict the code of anything but preserving and protecting individual autonomy," Toomey concluded.
On Dec. 21, Toomey introduced the Stablecoin Transparency of Reserves and Uniform Safe Transactions (TRUST) Act, which would establish federal regulations for stablecoins, according to a release. “Stablecoins are an exciting technological development that could transform money and payments. By digitizing the U.S. dollar and making it available on a global, instant and nearly cost-free basis, stablecoins could be widely used across the physical economy in a variety of ways,” Toomey said.
“I hope this framework lays the groundwork for my colleagues to pass legislation next year safeguarding customer funds without inhibiting innovation,” Toomey said. “I’ve put forward a regulatory model that won’t undermine competition by favoring entrenched incumbents; for example, by limiting payment stablecoin issuance to insured depository institutions. This bill will also ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity.”
The bill would require all stablecoins to be backed by liquid assets, authorize certain regulated entities to issue stablecoins, put disclosure requirements on stablecoin issuers, and authorize the Office of the Comptroller of the Currency to create a federal license for stablecoin issuers.
FTX, which was once valued at $32 billion, filed for bankruptcy in November as the crypto exchange’s founder, Sam Bankman-Fried, resigned amid accusations of financial misdeeds and fraud, Knowledge at Wharton reported. The collapse of FTX has led to calls for greater regulation in the crypto sector to protect investors and consumers.
Major players in the crypto sector who have called for digital asset regulation include Changpeng Zhao (CZ), the Canadian founder and CEO of Binance, the world's largest crypto exchange.
“Regulatory clarity is needed ASAP,” CZ said in a Jan. 24 tweet. “I have said this before and will say it again: the best form of user protection is globally consistent, risk-based regulation. Outright bans will just lead to users operating in the shadows, at their own risk, and without any safety net…User protection and market integrity are enhanced when lawmakers and regulators expand the scope of permissible activities. We have seen this in many other industries: TradFi, healthcare, pharma, internet, content, etc.”