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The Treasury Department’s Financial Stability Oversight Council (FSOC) is weighing in on crypto assets and their potential to affect the traditional financial structure of the US.
The council, which was formed by the Dodd-Frank Act to help identify financial stability risks in the United States, says that crypto assets such as stablecoins may compromise the country’s financial system if the industry remains unregulated.
“Crypto-asset activities could pose risks to the stability of the U.S. financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure.”
The FSOC says that while space’s connection to the traditional system is still relatively negligible, certain choke points like stablecoins and trading platforms could pose threats in the future.
“Although interconnections with the traditional financial system are currently relatively limited, they could potentially increase rapidly. Participants in the crypto asset ecosystem and the traditional financial system have explored or created a variety of interconnections. Notable sources of potential interconnections include
traditional assets held as part of stablecoin activities.
Crypto-asset trading platforms may also have the potential for greater interconnections by providing a wide variety of services, including leveraged trading and asset custody, to a range of retail investors and traditional financial institutions. Consumers can also increasingly access crypto-asset activities, including through certain traditional money services businesses.”
The council says that compliance with and enforcement of existing regulations is a “key step” in addressing these potential risks. It also recommends bolstering the capacity of regulatory agencies related to crypto-asset data and expertise in order to tackle the threats the industry may pose.