We see fraud, we see a lack of transparency: Fed Chair Jerome Powell on crypto

When he appeared before the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday, Federal Reserve Chairman Jerome Powell was asked about the risks that crypto-assets pose and how the Fed is evaluating these risks.

In his reply, Jerome Powell said:

“We’ve been quite active in this area,” Powell replied. “We believe innovation is very important over time to the economy. We don’t want to stifle innovation, we don’t want regulation to stifle innovation in a way that just favors incumbents, that kind of thing.”

Although the fed chair said they do not intend to stifle innovation, he went ahead to state that the Fed is ensuring that the regulated financial institutions take care when engaging with cryptocurrencies.

“So what we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful, are taking great care in the ways that they engage with the whole crypto space.”

Warnings about crypto risks

The Fed chair also noted that the Federal Reserve has in the past issued several joint notices with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) warning regulated financial institutions and banks about the risks associated with engaging in cryptocurrency activities.

In January this year, the OCC, FDIC, and the Fed jointly cautioned banks to engage in proper risk management. The three regulators said:

“Banking organizations should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks.”

In February, the three regulators went ahead to jointly warn about cryptocurrencies’ liquidity risks.

Jerome Powell’s answers come at a time when the US Securities and Exchanges Commission (SEC) has been vigorously cracking down on cryptocurrency firms alleging that they are selling unregulated securities. The most recent is the attack on the largest cryptocurrency exchange Binance for its stablecoin, the Binance USD (BUSD) which the SEC says is a security and issued a wells notice to Paxos Trust Co. for issuing it. There is also the Ripple (XRP) vs SEC court case that has dragged on for more than 3 years now where the SEC is alleging that the XRP token is a security rather than a cryptocurrency.

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