The US Government Accountability Office (GAO) has appealed to the Federal Deposit Insurance Corporation (FDIC) to make efforts to cooperate with other agencies regarding risks of blockchain technology. The GAO released a letter dated June 8 to FDIC Chairman Travis Hill, stating that it had, for the first time, identified priority recommendations regarding the regulator in May last year, among them being blockchain technology threats. The letter stated that the organisation had categorised blockchain technology as an area of risk and is part of their “High Risk List”.
GAO Highlights Need for Joint Regulatory Response to Emerging Risks
The reason for this classification is that regulators believe that there has been a failure in monitoring blockchain-based financial instruments. In accordance with the provisions of the recently enacted GENIUS Act, the FDIC is the principal agency responsible for regulating stablecoins issued by subsidiaries of financial institutions supervised by the FDIC. The Senate members have proposed a bill that will define the federal regulation of the crypto market.
In its letter to Hill, the GAO added that in 2023, the financial regulators did not have an ongoing coordination mechanism” to address blockchain risks and that, meanwhile, blockchain-based financial products and services have expanded significantly.
The letter also read that “Establishing such a mechanism, as we recommended, would help FDIC and other regulators collectively identify risks and develop and implement a regulatory response on time.” The GAO also urged that the FDIC rotate case managers assigned to banks to strengthen supervision of the sector.
According to this body, there was no requirement for supervisors to rotate to other banks in 2024, something that could affect their independence and impact supervisory results, but supervisor rotation could minimise threats to independence. The GAO noted that the failures of crypto and technology-related industry-associated banks in 2023 “raised questions” regarding whether bank supervisors took sufficient actions to ensure banks promptly addressed supervisory concerns.
In April, the FDIC in the US proposed a new regulation where they want to enact a new set of rules that will control stablecoin issuing to investors, and is in line with the GENIUS Act. In simple terms, every stablecoin must be backed 1:1 with real assets. If there are $1 billion (roughly Rs. 9,452 crore) worth of stablecoins in circulation, the issuer must hold $1 billion in actual reserves without any exceptions. This law will also set reserve, redemption, capital, risk management, and custody standards for stablecoin issuers and insured depository institutions under its supervision.
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