This past week, Secretary of the Department of Treasury Janet Yellen testified before the House Financial Services and Senate Banking Committees in hearings titled: “The Annual Report of the Financial Stability Oversight Council (FSOC).” 

Yellen identified gaps in the current regulatory framework, especially around stablecoins and the broader crypto market. The hearings highlighted a collective call to action for Congress to establish clear rules that could guide the future of finance in a digital age. With a focus on enhancing financial stability and protecting consumers, the testimony underscored the urgency of adapting regulatory practices to keep pace with innovation. 

Key Takeaways:  

  • Sec. Yellen pointed to regulatory gaps: “Congress should pass legislation to provide for the regulation of stablecoins and the spot market for crypto assets that are not securities.”
    • “The CFTC, for example, doesn’t have supervisory or regulatory authority with respect spot markets and commodities like Bitcoin…so that’s a regulatory gap.” 
    • “Stablecoins pose risks to the financial system that both FSOC and the President’s Working Group on Financial Markets have identified as potentially becoming significant over time and we would very much welcome an effort by Congress to create a regulatory framework that would be appropriate to address those risks.” 

  • Chair McHenry (R-NC) highlighted legislation to fill these gaps: “On the regulation of the spot market for digital assets. This committee has produced two, bipartisan bills. One on stablecoins and one on market structure to regulate the spot market of digital assets, providing clarity between the SEC and CFTC.”  
    • McHenry continued: “stablecoins are now being regulated by the states. New York has a very ‘resilient’ regime. Are you suggesting something like the New York regime would be applicable to fix this problem?” 
      • Sec. Yellen responded that “FSOC believes it’s critical for there to be a federal regulatory floor that would apply to all states and a that federal regulator should have the ability to decide if a stablecoin issuer should be barred from issuing such an asset.”  
    • Both bills, the FIT for the 21st Century Act and the Clarity for Payment Stablecoins Act, passed HFSC in July of last year and still await a full floor vote in the House.  
  • Sen. Brown (D-OH) and Sen. Warner (D-VA) continued to point to illicit finance’s use of crypto:  
    • Sen. Brown questioned if Treasury needs to “update [their] counter-terrorism tools to respond to the risk created by digital assets?” Sec. Yellen responded that the agency has “identified a number of holes in our authorities and composed a list of suggestions for ways in which Treasury’s authorities could, and should be, strengthened.”  
    • Sen. Warner asked for a direct endorsement of his Terrorist Financing Prevention Act, legislation that would broaden the U.S. Treasury Department’s sanctions powers and grant FinCEN additional authorities to address threats involving digital assets. Sec. Yellen affirmed her endorsement and added “I would agree that there are limitations the Treasury faces, and we certainly support the aims of the bill. It would help give us authorities that would enable us to better deal with a very significant threat.”