Is Crypto Regulation on the Horizon?

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* In February, the CFA Institute Systemic Risk Council (SRC) urged congressional and regulatory action on Stablecoins.

* In a letter to Treasury Secretary Janet Yellen and members of the Financial Stability Oversight Council (FSOC), the SRC urged the group to act on growing risks to U.S. financial stability posed by unregulated crypto assets, in particular the wild west of stablecoins.

* The SRC proposed a two-pronged strategy that included FSOC moving quickly to designate stablecoins as systemically important payment, clearing, and settlement activities, while various FSOC member agencies, including the banking regulators, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) would use their existing enforcement authorities to regulate stablecoins and other crypto assets where indicated.

* Importantly, the SRC asked that FSOC members work more collectively within the U.S. but also with global regulators to reduce fractionalized approaches to destabilizing crypto activities that can quickly and easily migrate cross border.

* So far, progress on these fronts remains slow.

* Many of the crypto assets being produced are ill conceived and not ready for conventional markets.

* Meanwhile, regulators have generally struggled to keep up with rapidly emerging technologies that support these new products.

* There is a growing fear of politicians playing into the commercial interests of crypto industry players seeking limited oversight and regulation.

* To make matters even more challenging, the complexity of what falls under the crypto asset umbrella is formidable.

* Oddly, the onus is on the member bank to decide whether they have adequate risk management and internal control systems to conduct crypto-asset activities in a safe and sound manner.

* Last November, the FDIC and Fed released an interagency statement regarding their crypto-asset policy initiative, pledging to provide greater regulatory clarity over the year ahead.

* Then in early 2022, lawmakers sent a letter to the Office of the Comptroller of the Currency (OCC) directing it to coordinate more with the Fed and FDIC.

* It also directed the OCC to withdraw several interpretive letters issued since 2020 which permitted banks to engage in crypto-related activities such as offering crypto custody, holding stablecoin reserve deposits and facilitating stablecoin payments.

* Meanwhile, the Chairman of the SEC, Gary Gensler, and the Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, both members of the FSOC, were on the regulatory move.

* In their discussions with our Systemic Risk Council, they confirmed that the task of crypto oversight is high on the list of priorities for them and all global market regulators.

* Both the SEC and CFTC are quickly moving to understand and sort out the regulatory considerations,

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