Senate Banking FSOC Hearing Sees Some Crypto Discussion

The Senate Banking Committee hearing titled, “The Financial Stability Oversight Council Annual Report to Congress,” took place with U.S. Treasury Secretary Janet Yellen taking questions from members on behalf of FSOC, which she leads.

See the recorded video.

Secretary Yellen’s prepared opening testimony included remarks on digital assets asking for Congress to act on creating a regulatory framework, which largely reflected her digital assets testimony at the House Financial Services FSOC hearing earlier in the week.

“… 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. Applicable rules and regulations should be enforced, and Congress should pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities. We look forward to continuing to engage with Congress on this.”

Chair Sherrod Brown (D, OH) guided the day’s agenda on behalf of the Majority Democrats. Ranking Member Tim Scott (R, SC), a possible candidate for Vice President on former President Donald Trump’s 2024 ticket, led the Minority Republicans.

Q&A – Chair Brown

With multiple bills related to digital assets and legislation swirling in his Committee, and even perhaps his own yet-to-be-introduced bill, Chair Brown took part of his Q&A time to discuss digital asset “risks.”

Chair Brown: “Do we need to update our counterterrorism tools, Madam Secretary, to respond to the risks created by digital assets?”

Secretary Yellen: “… We do have authorities, many authorities that enable us to act, but we’ve identified a number of holes in our authorities and have composed a list of suggestions for ways in which Treasury’s authorities could and should be strengthened. And we look forward to working with you to try to accomplish this.”

Chair Brown: “We will work with you on that some of it. You can do [some] as the Secretary of Treasury – much of it needs Congressional authority. We will absolutely work with you. You’ve been cooperative all along.”

Q&A – Senator Warner

During his 5 minutes of Q&A with the Secretary, Senator Mark Warner (D, VA) discussed the bill he introduced in December related to digital assets: the “Terrorist Financing Prevention Act” {S.3441].

Yellen gave a lukewarm endorsement, at best, of Warner’s legislation.

Senator Warner: “Yesterday’s risk assessment states that Hamas is a well-resourced group that garners substantial financial resources for numerous and divisive sources use complicit virtual asset service providers (VASPs) and money transmitters and global move finds. The remarkable thing is back in 2016, I said to put secondary sanctions in place for Hezbollah. Yet here we are now 120 days after the horrific attacks October 7, and we still haven’t put secondary sanctions in place for Hamas -or for that matter, any other foreign terrorist organizations.”

“So, we’ve tried to put an end to that. Together with Senators Rounds (D, MT), Reed (D, RI) and Romney (R, UT), I’ve introduced Senate Bill 3441, the “Terrorist Financing Prevention Act” to help address this program. This would make sure that all foreign terrorist organizations would be covered. And, it would be able to have them go after – not only their secondary banking – but also their ability to use crypto.”

“I really appreciate that Treasury has helped a lot with technical assistance on this piece of legislation. But I want to give you the opportunity now to speak to this issue and whether you think this kind of legislation is needed because our understanding is without it, you can’t put in place this full bevy of extensions.”

Secretary Yellen: “I would agree that there are limitations Treasury faces, and we certainly support themes of the bill. They would help give us authorities that would enable us to better deal with a very significant threat.”

add’l summary

Senators Elizabeth Warren (D, MA) and Senator Jack Reed (D, RI) chose not to promote their own bills during the Q&A – the Digital Asset Anti-Money Laundering Act [S. 2669] and Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act [S. 2355], respectively.

Republican Senator Bill Hagerty (TN) did not discuss digital assets but did question whether Treasury had been using words such as “MAGA” or the purchase of a bible as a precursor to surveillance.  Secretary Yellen said she would get back to him on the circumstances he presented.

Overall, Sen. Hagerty’s themes echoed his past insistence that the U.S. government is partaking in a Choke Point-type operation, where citizens and corporations are cut-off from basic services such as banking by government entities.

Senator Cynthia Lummis (R, WY) did not appear.

Overall, there was a sense from the Democratic Majority that they were not going to (and, perhaps, told not to) dive deeply on the digital assets topic with the Secretary at this hearing.