Washington, D.C. – Below is Ranking Member Stephen F. Lynch’s (MA-08) opening statement as prepared for delivery at yesterday’s Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion Subcommittee inaugural hearing on America’s Digital Asset Ecosystem:
“I would like to congratulate Congressman French Hill on his selection as Chair of the Subcommittee on Digital Assets, Financial Technology and Innovation and Congressman Warren Davidson as Vice Chair. It was an honor to serve as Chair of the Task Force on Financial Technology last congress and I hope to continue that work through this subcommittee serving as the lead Democrat. We can play an important role in shaping policy in the digital assets and FinTech space and I believe there are areas in which we can find common ground. Innovation has the potential to increase the accessibility and lower costs of financial services products, but I also exercise caution about risks to consumer financial data, hidden fees, and misleading marketing practices. I plan to continue to voice these concerns this congress.
“I remain curious about innovation in financial services and the potential of blockchain technology. Given the collapse of much of the crypto industry this year, including the recent news involving Silvergate Bank and scrutiny over Binance’s practices, I have serious concerns about the volatility and risks crypto assets pose to consumers, particularly low-income and underrepresented communities. The collapse of TerraUSD, Celsius, BlockFi, and FTX speaks to the larger regulatory gaps in this space, including lack of corporate controls, inadequate liquidity or reserves, commingling of assets, and irresponsible practices. I worry that these practices exist across the industry and are a result of insufficient oversight. I commend the actions of this administration through its reports, guidance, and executive orders to thoughtfully examine the benefits and risks of crypto products.
“I also have concerns about the exposure of crypto companies to our banking system and I am encouraged to see that our prudential banking regulators are recommending caution. Yesterday’s announcement about the liquidation of Silvergate Bank illustrates why we need a separation between crypto assets and the banking system and why the guidance from the Fed, OCC, and FDIC was needed.
“Prior to the collapse of the crypto industry, the hype was astounding. From celebrity endorsements to Super Bowl ads, companies sold crypto assets as revolutionary products that would transform our financial ecosystem. Crypto companies deliberately misled consumers about the risks of their products, some even going so far as to falsely claim their products were FDIC insured. It is clear that Congress must play a role in reigning in crypto companies.
“While I am confident that my colleagues across the aisle agree that we need a legislative solution to the digital assets space, how we get there may pose a challenge. There appear to be conflicts between the crypto industry and the SEC surrounding how crypto assets should be regulated. Chair Gensler has stated that the vast majority of crypto assets are securities, as illustrated by the Howey test, and should be regulated as such. Crypto companies must come into compliance with existing securities laws that ensure that investors and markets are protected. The crypto industry, and many of my Republican colleagues, have spun a false narrative that the SEC regulates through enforcement and makes it impossible for the industry come into compliance, when in reality, the SEC is enforcing the laws that congress directed it to and has provided appropriate direction. These arguments also conflict with accusations that the SEC did not go far enough in taking actions to prevent the FTX collapse. This attack on the SEC is a tactic employed by the crypto industry to evade compliance with the law because the industry knows that it would not meet the justifiably high standards that make our financial system the envy of the world.
“Lastly, I am disappointed that the consumer’s voice has been missing from these conversations and I am disturbed by the ways in which crypto companies specifically targeted low-income and minority communities. Many made misleading claims about the promises of their products, such as faster payments, lower cost remittances, and wealth building vehicles. This type of predatory inclusion is not unique to crypto industry and has been common in FinTech and is reminiscent of the 2008 financial crisis and prior events. I plan to explore this issue more this year.
“I urge my colleagues not to fall for industry talking points about regulatory overreach. Instead, we should direct our attention to thoughtfully addressing the risks of the crypto industry.”