The Financial Stability Oversight Council today released its Report on Digital Asset Financial Stability Risks and Regulation. The Council voted to approve the report in response to Section 6 of President Biden’s Executive Order 14067, “Ensuring Responsible Development of Digital Assets.”

From the report:

Though the existing regulatory system covers large parts of the crypto-asset
ecosystem, this report identifies three gaps in the regulation of crypto-asset activities
in the United States.

First, the spot markets for crypto-assets that are not securities are subject to limited
direct federal regulation. As a result, those markets may not feature robust rules and
regulations designed to ensure orderly and transparent trading, prevent conflicts
of interest and market manipulation, and protect investors and the economy more
broadly.

Second, crypto-asset businesses do not have a consistent or comprehensive
regulatory framework and can engage in regulatory arbitrage. Some crypto-asset
businesses may have affiliates or subsidiaries operating under different regulatory
frameworks, and no single regulator may have visibility into the risks across the
entire business.

Third, a number of crypto-asset trading platforms have proposed offering retail
customers direct access to markets by vertically integrating the services provided by
intermediaries such as broker-dealers or futures commission merchants. Financial
stability and investor protection implications may arise from retail investors exposure to certain practices commonly proposed by vertically integrated trading platforms, such as automated liquidation.

To ensure appropriate regulation of crypto-asset activities, the Council is making
several recommendations in part 5 of this report, including the consideration of
regulatory principles, continued enforcement of the existing regulatory structure,
steps to address each regulatory gap, and bolstering member agencies’ capacities
related to crypto-asset data and expertise.

The report is available here https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf