Janet Yellen In Hot Water As Congress Questions Recent Decisions

US Congress members have openly challenged the call made by Treasury Secretary Janet Yellen regarding increased oversight of cryptocurrencies, emphasizing the limitations of the Howey Test in safeguarding crypto consumers in a recent letter addressed to her.

The correspondence, endorsed by House Financial Services Committee Chair Patrick McHenry, House Agriculture Committee Chair Glenn Thompson, along with Rep. French Hill and Rep. Dusty Johnson, requests detailed elucidation by Yellen on shaping the regulatory framework regarding digital assets, following her recent pronouncement.

Clarity Is Needed

Congress seeks clarification on the role of the US Securities and Exchange Commission (SEC). Notably, they have voiced concerns regarding the efficacy of the Howey Test, utilized to ascertain the classification of a transaction as an investment contract and hence a security. Congress is questioning whether the Howey Test provides adequate consumer protection.

The lawmakers have contended that according to SEC Chairman Gensler, the vast majority of crypto tokens likely meet the investment contract test. However, the final investment contract analysis is backward-looking, determined by a court after the transaction has concluded. How does this reactive legal authority ensure sufficient customer protection, especially in the absence of comprehensive legislation, the lawmakers asked.

Moreover, Congress has underscored that the current regulatory framework does not encompass a significant portion of the crypto-asset ecosystem, including Bitcoin and Ethereum. They have inquired of the Financial Stability Oversight Council (FSOC) whether these cryptocurrencies are regarded as securities. Led by Yellen, the FSOC convenes key financial regulators to oversee potential risks and uphold the stability of the financial.

Addressing Concerns

Congress members have additionally raised concerns about regulatory gaps in spot markets for digital assets not classified as securities. They are querying whether the Commodity Futures Trading Commission should extend its jurisdiction to include these spot markets, considering its existing authority over certain aspects of non-security digital asset transactions.

In any case, Congress anticipates Yellen to respond to these concerns by February 20th. Yellen has also been actively advocating for stricter regulations post the collapse of FTX. During a recent testimony before the House Financial Services Committee, she cautioned about the risks associated with crypto platforms and stablecoins, urging Congress to enact stringent regulations for the crypto industry.