U.S. Senator Bob Menendez (D-N.J.), a senior member of the Senate Committee on Banking, Housing and Urban Affairs, today questioned witnesses on the effects and importance of applying existing regulations to cryptocurrencies in light of the recent FTX collapse as Congress seeks answers on how to protect investors, our financial system, and our national security from crypto-related risks.
“A lot of securities regulation essentially comes down to one thing – what actions are and are not permissible when one person is handling another person’s money. And by and large, we in Congress, the securities industry, and the general public have agreed on the major principles that should guide that activity,” said Sen. Menendez. “For instance … brokers are not permitted to use customer funds to finance their business. They are required to fully disclose conflicts of interest. And when dealing with retail investors, they are required go further and mitigate certain conflicts. FTX doesn’t seem to have done any of this, and if they had, it seems like a lot of harm would’ve been prevented.”
Sen. Menendez also asked witnesses what would be required to perform full, accurate, and meaningful audits of crypto firms, given efforts to integrate digital assets into the wider traditional financial system.
“In the wake of the FTX collapse, many crypto firms have attempted to reassure the public of their soundness by hiring outside auditors to provide proof of reserve. However, the quality of these audits are inconsistent and oftentimes provide an incomplete picture of the company’s assets and liabilities,” added the senator.
Last month, days after FTX’s collapse, Sen. Menendez called for Congress and regulators to step up efforts to determine what regulations are needed to ensure crypto exchange investors and the overall financial system are protected.
Sen. Menendez has been a leader in the fight to protect consumers, investors and the larger economy from cryptocurrency-related risks. In September, Sen. Menendez joined a letter urging Meta to provide information about the company’s efforts to combat cryptocurrency scams and hold bad actors accountable for cryptocurrency fraud on its platforms. In March, Sen. Menendez joined colleagues and introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites cannot use digital assets to undermine the international community’s economic sanctions against Russia following its unprovoked invasion of Ukraine.