The report reviews the specific financial stability risks and regulatory gaps posed by various types of digital assets and provides recommendations to address such risks. 

The report finds that cryptoasset activities "could pose risks to the stability of the U.S. financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure." 

Although the existing regulatory system covers large parts of the cryptoasset ecosystem, the report identifies three gaps in the regulation of cryptoasset activities in the United States.

1. The spot markets for cryptoassets that are not securities are subject to limited direct federal regulation. As a result, those markets "may not feature robust rules and regulations designed to ensure orderly and transparent trading, prevent conflicts of interest and market manipulation, and protect investors and the economy more broadly."

2. Cryptoasset businesses "do not have a consistent or comprehensive regulatory framework" and can "engage in regulatory arbitrage". Some cryptoasset businesses may have affiliates or subsidiaries "operating under different regulatory frameworks, and no single regulator may have visibility into the risks across the entire business."

3. A number of cryptoasset trading platforms have proposed offering retail customers direct access to markets by "vertically integrating the services provided by intermediaries such as broker-dealers or futures commission merchants. Financial stability and investor protection implications may arise from retail investors’ exposure to certain practices commonly proposed by vertically integrated trading platforms, such as automated liquidation."

To address regulatory gaps, the Council recommends:

• the "passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for cryptoassets that are not securities";
• steps to address "regulatory arbitrage including coordination, legislation regarding risks posed by stablecoins, legislation relating to regulators’ authorities to have visibility into, and otherwise supervise, the activities of all of the affiliates and subsidiaries of cryptoasset entities, and appropriate service provider regulation"; and 
• study of potential vertical integration by cryptoasset firms.

The Council also recommends "bolstering its members’ capacities related to data and to the analysis, monitoring, supervision, and regulation of cryptoasset activities."

The Treasury published a factsheet summarising the report’s key findings and recommendations.

The US Department of the Treasury published a statement by Secretary Yellen regarding the report.

The Acting Comptroller of the Currency Michael J. Hsu released a statement in support of the Financial Stability Oversight Council’s Report on Digital Asset Financial Stability Risks and Regulation.

The letter said:

"We thus strongly encourage the Treasury Department to utilize private sector innovations such as blockchain and DLT to support the necessary functions of government to distribute and track relief programs and direct that all guidance support the use of technology to facilitate delivery of CARES Act benefits. Such steps will ensure both that America retains its technological advantage and that relief is delivered quickly to the small businesses and individuals who need it most."

One of the key findings of the report is that a large majority of investors are aware of cryptocurrencies (85%). Nearly one in five (18%) are considering investing in ryptocurrencies, and 12% are already invested. While awareness is consistent across age groups and portfolio values, younger investors (ages 18 to 34) and those with portfolios of less than $50,000 are much more likely than average to consider cryptocurrency investments and invest in them.

In a speech at the Fintech Forward conference, Chairman Heath T. Tarbert said that LabCFTC will now be making its own way and report directly to him.

Established in 2017 within the Office of General Counsel under then Chairman Christopher Giancarlo, LabCFTC was designed to be the focal point for the agency to engage with the FinTech community and promote responsible innovation, the Chairman said.

He added:

“Blockchain, digital assets, and other developments hold great promise for our economy. Now is the time for LabCFTC to play an even greater role as we work to develop and write the rules for these transformative new products. That reality requires engagement at the highest levels within the CFTC, which is why I am elevating LabCFTC to be an independent operating office of the agency and a direct report to me.”

LabCFTC is currently led by Melissa Netram, who previously served as a policy and regulatory affairs executive at Silicon Valley-based Intuit.

Netram said:

“Progress depends on how well regulators respond to financial innovation. LabCFTC is at the forefront of exploring and examining the value of innovation in our financial markets and making our agency accessible to fintech innovators. I’m excited to be a part of the agency and believe the elevation of the office speaks to the value and commitment the Chairman is placing on fostering innovation at the CFTC.”

Also at the conference, LabCFTC released a primer on artificial intelligence in financial markets, as an educational tool for market participants, consumers, and the public.

“AI’s power to analyze vast pools of data to detect patterns and generate insights presents great opportunities to enhance the integrity of our derivatives markets,” added Netram.