Bahamas-based crypto exchange FTX filed for bankruptcy in the US on November 11, 2022, seeking legal protection as it seeks a way to return funds to users.
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Senate Banking Committee Chair Sherrod Brown on Wednesday called on Treasury Secretary Janet Yellen to work with lawmakers and financial regulators to help draft legislation to curb the cryptocurrency market in the wake of crypto exchange FTX’s collapse.
In a letter to the Treasury Department chief, Brown, D-Ohio, urged Yellen to include recommendations from the Financial Stability Oversight Committee, including legislation that would “create powers for regulators to look into the activities of subsidiaries and use them otherwise.” to oversee affiliates of crypto-asset entities” with financial regulators such as the Securities and Exchange Commission and the Federal Reserve Board.
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Brown sent the letter the day before the first congressional hearing on FTX’s collapse. The Senate Agriculture Committee called Commodity Futures Trading Commission Chairman Rostin Behnam to testify Thursday about the company’s dramatic and rapid failure. Brown intends to hold its own hearing on FTX and its founder Sam Bankman-Fried in December, a spokesman previously told CNBC.
“As we unearth more details, the failure of this crypto exchange reminds us of the litany of financial company failures due to the combination of reckless risk-taking and misconduct,” Brown wrote to Yellen. “It is critical that risks in this area are contained and not spilled over into traditional financial markets and institutions, and we are learning the right lessons in terms of client and investor protection.”
In response to the request for comment, Treasury Department CNBC referred to comments Yellen made at the New York Times DealBook summit on Wednesday.
“To the extent that the crypto world could deliver faster, cheaper, and more secure transactions, we should be open to financial innovation,” Yellen said. “That means it wasn’t mostly about that. And I firmly believed in that and I continue to believe that, and I think everything that we’ve been through in the past few weeks, but also before, says that this is really an industry that needs to have proper regulation. And it doesn’t.”
FTX filed for bankruptcy and its CEO, Bankman-Fried, resigned earlier this month. The crypto giant was valued at $32 billion.
In his letter, Brown warned that “FTX’s ties to other risky crypto firms have likely deepened its losses and continue to send shockwaves to other companies” and that the company “failed to exercise basic corporate controls or risk management over its operations.”
Hot on FTX’s heels, crypto firm BlockFi filed for bankruptcy on Monday. The company listed an outstanding $275 million loan to FTX US in the filing.
The collapse of each company put more than 200,000 creditors at risk.
Brown encouraged partnership between Congress, the Treasury Department and the White House, even citing the Treasury Department’s coordination with the President’s Working Group on Financial Markets. The group recommended legislation regulating stablecoins, a brand of cryptocurrency, in a Nov. 1 report.
“Congress and financial regulators need to work to fix all of this. As more crypto outages occur, the age-old adage is truer than ever – if it seems too good to be true, it probably is,” Brown wrote.
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