U.S. Congress members have challenged Treasury Secretary Janet Yellen‘s call for stronger crypto regulation, pointing out the Howey Test’s shortcomings in consumer protection in a recent letter.
A new letter published by US members of Congress asks for clarity on the role of the country’s top regulatory in adopting crypto specific legislation.
The letter was backed by key figures, including House Financial Services Committee Chair Patrick McHenry, House Agriculture Committee Chair Glenn Thompson, and Representatives French Hill and Dusty Johnson. They are seeking a comprehensive explanation from Yellen on how she envisions the regulatory landscape for digital assets.
The congressmen specifically asked for clarification on the role of the Securities and Exchange Commission (SEC) and the effectiveness of the Howey Test. This test is crucial for determining whether a transaction qualifies as an investment contract and, therefore, a security. They voiced concerns that the SEC’s current approach, which relies heavily on the Howey Test, may not offer sufficient protection for investors.
The letter highlighted, “Chair Gensler has declared that ‘the vast majority of crypto tokens likely meet the investment contract test.’” However, it pointed out the retrospective nature of the SEC’s analysis, which occurs after transactions have taken place, raising doubts about its proactive capacity to safeguard consumer interests.
Furthermore, the congressmen brought attention to significant parts of the crypto-asset ecosystem, such as Bitcoin and Ether, which fall outside the current regulatory scope. They questioned the Financial Stability Oversight Council (FSOC), led by Yellen, on whether these cryptocurrencies are classified as securities.
The FSOC, which coordinates among major financial regulators to identify and manage systemic risks, has been asked to provide clarity on this matter.
Yellen’s push for tighter regulations comes in the wake of the FTX collapse, highlighting the vulnerabilities within the crypto industry. During her testimony before the House Financial Services Committee on Feb. 6, she reiterated the need for Congress to legislate regulation over stablecoins and the spot market for non-security crypto assets, pinpointing the regulatory voids within the current framework.
Yellen emphasized the existence of “clear regulatory authority” in many areas concerning digital assets but acknowledged gaps that compromise consumer protection and financial stability. Specifically, she pointed out the CFTC’s lack of authority over spot markets as a significant regulatory gap.
Focusing on stablecoins, Yellen identified them as a potential risk to the financial system, advocating for a dedicated legislative framework to address these concerns. Her call for regulatory clarity and enhancement reflects a broader governmental push for safeguarding the financial ecosystem against the volatile nature of cryptocurrencies.
The congressmen expect a response from Yellen by Feb. 20, indicating a pressing need for clarity and action in addressing the regulatory challenges facing the crypto industry. This dialogue underscores the ongoing debate between regulatory bodies and legislators on how best to navigate the complexities of the cryptocurrency market, balancing the need for innovation with consumer protection and financial stability.