Senate Banking Committee Sees More Storm Clouds After FTX Collapse

Updated: 15 February 2023

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The Senate Banking Committee held a largely quiet affair on Tuesday with a panel of professors well-versed in financial regulation, according to a Fortune report. This comes after various high-profile congressional hearings were held in December after the demise of a giant crypto exchange FTX.

“Recent crypto meltdowns have made clear that we need a comprehensive framework to regulate crypto products to protect consumers and our financial system.” https://t.co/9rOoW8wNDY pic.twitter.com/WtyAGrnEHI

— Fortune Crypto (@FortuneCrypto) February 14, 2023

The lawmakers are still investigating the collapse of FTX and various agencies, including the Securities and Exchange Commission (SEC), are cracking down on the crypto space. The senators probed the congregated professors on the feasibility of legislation, aiming to change the perception that Congress has relaxed when it comes to crypto regulation.

However, Chair Sherrod Brown (D-Ohio) noted in his opening remarks that:

The nightmare isn’t over yet. Recent crypto fiascos have clarified that we need a comprehensive framework to regulate crypto products to protect consumers and our financial system.

Senate Banking Committee hearing

The three invited professors took a different viewpoint on crypto in a panel of expert witnesses in the Senate Banking Committee hearing. Among them was a former Federal Reserve official representing the anti-crypto side, Lee Reiners. However, as of now, Reiners is the Policy Director of the Duke Financial Economics Centre. He alerted the risks that unregulated crypto creates to the traditional financial system. Reiners said:

Crypto barely resembles the peer-to-peer version of electronic cash first intended by Satoshi Nakamoto

Additionally, Linda Jeng also gave her remarks on crypto. Jeng, a Georgetown Law professor, stipulated on technology potential and the risks which can be incurred by forcing the industry offshore. However, she said she was appearing in her capacity as an academic. Jeng serves in a trade association as a chief regulatory officer and general counsel for the crypto Council for Innovation.

Last but not least was Yesha Yadav, who asserted the self-regulatory structure for exchanges. Yadav, a Vanderbilt Law professor, additionally called out for regulation from lawmakers. Yadav noted:

We should not let the crisis go to waste.

However, the hearing focused on specific policy areas, including anti-money laundering standards, stablecoin, conflict of interest, and custody. Notably, the industry has new allies; hence it served as a departure for the new senator’s stance on crypto. They included J.D. Vance (R-Ohio), who noted that he owns cryptocurrency, and Katie Britt (R-Ala). Britt notably touted possible paths to financial inclusion, citing that 44% of crypto investors are not white and 41% are women. She asked:

If we put in proper guidelines, are there opportunities for more people to achieve the American dream through digital assets?

Senator Elizabeth Warren reintroduces a money-laundering-focused crypto bill.

Regardless of the money-laundering-focused crypto bill receiving industry pushback in December’s hearing, Sen. Elizabeth Warren (D-Mass) has revealed its re-introduction. Warren and Sen. Roger Marshall ( R-Kans) introduced a bill dubbed” Digital Asset Anti-Money Laundering Act of 2022.” The bill aimed at increasing financial crypto requirements.

However, after the regulator’s actions, the Office of the Comptroller of the Currency and Federal Reserve, the banking policy also hopped. Reiners asserted that agencies should ensure that banks don’t engage in risky behavior, such as holding crypto on the balance sheet.

The U.S. Securities and Exchange Commission (SEC) Gary Gensler was not in attendance. However, Tim Scott (R-S.C.), who took over as a ranking member in January following Pat Toomey’s retirement, noted that he hoped Gensler would testify sooner.