Bahamas-based crypto exchange FTX filed for bankruptcy within the U.S. on Nov. 11, 2022, in search of court protection because it looks for a strategy to return money to users.
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Senate Banking Committee Chairman Sherrod Brown urged Treasury Secretary Janet Yellen on Wednesday to work with lawmakers and financial regulators to assist write laws to rein within the cryptocurrency market within the wake of the collapse of crypto exchange FTX.
In a letter to the Treasury chief, Brown, D-Ohio, told Yellen to include recommendations from the Financial Stability Oversight Committee, including laws that may “create authorities for regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities,” with financial regulators, reminiscent of the Securities and Exchange Commission and the Federal Reserve Board.
An Oct. 3 FSOC report noted gaps within the regulation of crypto asset activities.
Brown sent the letter the day before Congress holds its first hearing on FTX’s collapse. The Senate Agriculture Committee has called Commodity Futures Trading Commission Chairman Rostin Behnam to testify Thursday on the firm’s dramatic and swift failure. Brown intends to carry his own hearing on FTX and its founder, Sam Bankman-Fried, in December, a spokesperson previously told CNBC.
“As we proceed to learn more details, the failure of this crypto exchange brings to mind the litany of economic firm failures because of the mix of reckless risk taking and misconduct,” Brown wrote to Yellen. “It’s crucial that risks on this area are contained and don’t spillover into traditional financial markets and institutions, and we draw the right lessons regarding customer and investor protection.”
When asked for comment, the Treasury Department referred CNBC to comments Yellen made at The Latest York Times’ DealBook Summit on Wednesday.
“To the extent that the crypto world could deliver faster, cheaper, safer transactions, we should always be open to financial innovation,” Yellen said. “That said, that is not what most of it has been about. And I strongly believed and proceed to imagine and I believe the whole lot we have lived through during the last couple of weeks, but earlier as well, says that is an industry that basically must have adequate regulation. And it doesn’t.”
FTX filed for bankruptcy and its CEO, Bankman-Fried, stepped down earlier this month. The crypto giant was valued at $32 billion.
In his letter, Brown warned that “FTX’s connections to other dangerous crypto firms likely deepened its losses and proceed to send shock waves to other entities” and that the corporate “didn’t exercise basic corporate controls or risk management over its operations.”
Close on FTX’s heels, crypto firm BlockFi filed for bankruptcy on Monday. The corporate listed an excellent $275 million loan to FTX US within the filing.
Each company’s failure endangered greater than 200,000 creditors.
Brown encouraged partnership between Congress, Treasury and the White House, even referencing the Treasury’s coordination with the President’s Working Group on Financial Markets. The group really helpful laws to control stablecoins, a brand of cryptocurrency, in a Nov. 1 report.
“Congress and the financial regulators must work to get all of this right. As more crypto failures occur, the age-old adage is more true than ever — if it seems too good to be true, it probably is,” Brown wrote.
