- The rules and policies for digital assets lack clarity, significantly impacting financial institutions navigating higher interest rates.
- Fed Governor stated the uncertainty of digital assets trapping institutions in a Supervisory void.
“The United States does not have a clear regulatory framework for novel technologies”, stated Michelle Bowman, a member of the Board of Governors of the US Federal Reserve System.
The financial crisis of 2008 completely involved the US regulatory framework and made it more restrictive, mainly in terms of capital and liquidity requirements and post-crisis reforms.
At the Salzburg Global Seminar, Bowman grabbed the attention of global regulators to the present situation of banking activities, mainly in terms of digital assets.
The financial institution has been left in a “Supervisory Void” mainly in the context of emerging technologies, According to Bowman.
The risks possessed by the current regulation states are also discussed by the Fed Governor. The regulators are free to impose new requirements on businesses after making a significant investment, as there is no clear regulatory framework.
The main purpose of the voice is to frame a clear regulatory framework for digital assets in order to engage with both traditional and novel activities.
“There are high chances of turning off investors and companies towards other crypto-friendly jurisdictions”, stated rating agency Moody’s on June 20.
No clear regulations for digital assets would be the main reason behind the change as the US does not support clear legislation focused on digital assets.
A recent draft released by the House Agriculture Committee and the House Financial Services Committee represents a discussion providing certain digital assets to be labeled as digital commodities.
The draft bill will help in establishing digital assets as digital commodities and payment stablecoins by prohibiting the US Securities and Exchange Commission (SEC) from refusing digital asset trading platform registration.
The bill would permit some of the digital assets to qualify as digital commodities only if the assets are functional and considered decentralized.
To adopt the concept and develop appropriate legislation for the digital asset, it is required that the SEC modify the rules to permit broker-dealers to custody of digital assets. Additionally, the SEC needs to write the rules to advance the developed regulations for digital assets.
A draft bill is introduced by Coinbase’s chief legal officer Paul Gerwal stating the bill is a strong foundation for digital asset legislation and requires in-depth review before formal introduction. To focus on this fact, the US-based crypto exchange recently launched an ad campaign scheduled for July. The lobby-focused event will be organized in Washington, D.C.
Bowman also warned that failing to provide clear policies for financial institutions on novel technologies will have an adverse impact on the banks navigating high-interest rates.
Conclusion
Fed Governor Michelle Bowman stated that digital assets lack clarity and may result as a consequence for financial institutions navigating higher interest rates. The situation may lead to imposing new requirements on businesses. No clear regulations can lead the regulators to impose new requirements on the companies after significant investments have been made. Relevant frameworks will help financial institutions work with both novel technologies and traditional financial activities. The overall conclusion of the conference is to develop clear policies and regulations for digital assets in order to use them effectively in the financial system.
