United States of America: Issued FSOC Report on Digital Asset Financial Stability Risks and Regulation

On 3 October 2022, the Financial Stability Oversight Council (FSOC) released its "Report on Digital Asset Financial Stability Risks and Regulation", pursuant to Section 6 of Executive Order 14067 on Responsible Development of Digital Assets. The report outlines the financial risks posed by crypto-assets and specifies the present regulatory gaps. According to the FSOC, crypto-asset prices appear to be determined by volatile assumptions rather than real economic factors, which could cause significant market crashes. The report outlines that firms that handle crypto-assets collaborate with crypto entities that engage in risky economic behaviour and do not provide transparency for their financing and investor profiles. The FSOC stresses that operational risks remain a concern since vulnerabilities are associated with distributed ledger technology. Furthermore, the report notes that while many firms claim to follow regulations, most of them are related to anti-money laundering or consumer protection and less about reducing financial volatility that arises from certain trading platforms or stablecoin issuers. In addition, the report notes that several platforms list securities but do not register with the correct broker-dealer certification. As a result, the FSOC identifies some regulatory gaps, stressing that crypto-asset platforms that do not offer securities are not subject to many federal regulations. Finally, the report states that since there is no clear regulatory framework, platforms can avoid certain rules by creating subsidiaries or sister companies with different purposes.