Treasury Secretary Janet Yellen on Wednesday called for more robust oversight of cryptocurrency markets after the stunning collapse of crypto exchange FTX, which plunged the trillion-dollar industry into chaos last week.
"The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets," Yellen said in a statement.
The Treasury Department and other regulators have identified risks in crypto markets over the past year, including the "comingling of customer assets, lack of transparency, and conflicts of interest," she said.
"We have very strong investor and consumer protection laws for most of our financial products and markets that are designed to address these risks," Yellen said. "Where existing regulations apply, they must be enforced rigorously so that the same protections and principles apply to crypto assets and services."
FTX, once the world's third-largest exchange with a valuation near $32 billion, sent shockwaves through the crypto world on Friday when it announced that it was filing for bankruptcy, along with Alameda Research and other affiliated companies. Days earlier, industry rival Binance backed out of a deal to buy its troubled competitor after taking a look at the books and learning that FTX had "mishandled customer funds."
The firm's founder and CEO, Sam Bankman-Fried, announced his resignation when the bankruptcy papers were filed in Delaware on Friday.
Both the company and Bankman-Fried are under investigation in the U.S. and other countries for possible securities violations amid allegations that FTX used $10 billion of customer funds to prop up Alameda Research, its affiliated trading firm.
The sudden collapse, which threatened to upend futures markets, has been likened the crypto industry's "Lehman Brothers" moment — a reference to the 2008 collapse of the global financial services firm that helped to spark the global financial meltdown.
It has raised major concerns about an industry that has remained largely unregulated.
Yellen acknowledged that FTX fallout has largely been limited to the crypto markets, but she warned that its links to the traditional financial system "could raise broader financial stability concerns."
"Going forward," she said, "it’s vital we do what is necessary to address these concerning risks and act to protect consumers and promote financial stability."
Panels in both the Senate and the House are planning to hold hearings on FTX's collapse next month. The House Financial Services and Senate Banking committees plan December hearings that will examine the sudden demise of FTX under the leadership of Bankman-Fried, a Democratic mega-donor.