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


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