Treasury Secretary Janet Yellen calls for legislation amid cryptocurrency risks

U.S. Treasury Secretary Janet Yellen will highlight the risks associated with crypto platforms and stablecoins and will urge Congress to pass legislation, according to testimony ahead of a congressional hearing on Tuesday.

Yellen, who leads the Financial Stability Oversight Council — a group of federal financial regulators tasked with monitoring the stability of the financial system — will go in front of the House Financial Services Committee on Tuesday to discuss the council's latest annual report. 

Yellen, who previously called now-bankrupt FTX the "Lehman moment" for crypto, referencing the collapse of financial firm Lehman Brothers that expedited the 2008 financial crisis, will tell lawmakers that FSOC is still honed in on crypto's risks.

"The Council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations," Yellen said in prepared testimony on Monday. 

Congress should pass legislation and applicable rules should be enforced, Yellen added. Lawmakers are working on legislation, including one focused on stablecoins and another more broadly on market structure. Bills to combat anti-money laundering have also been introduced. 

FSOC has been focused on digital assets and warned of crypto's price volatility and interconnectedness within the industry, in its 2023 annual report released in December. 

SAB 121

The committee is also expected to discuss a measure to appeal a staff bulletin from the Securities and Exchange Commission during Tuesday's hearing. Legislation to disapprove of the bulletin is part of the committee's memorandum for the hearing. 

The bulletin, issued in March 2022, requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets. SAB 121 has received pushback from crypto advocates, as some have called it "illogical." Others said it should have been done in the form of an official rule. SEC Chair Gary Gensler has stood by the bulletin, citing concerns for customers in bankruptcy court. 

Sen. Cynthia Lummis, R-Wyo., and Reps. Mike Flood, R-Neb., and Wiley Nickel, D-N.C., introduced a joint resolution to block that bulletin last week. Nickel and Flood both are members of the House Financial Services Committee.