(Kitco News) - The House Committee on Oversight and Reform jumped head first into its involvement with the cryptocurrency sector on Tuesday, revealing that it sent a series of letters to numerous federal agencies and cryptocurrency exchanges as part of its efforts to protect Americans from fraud.
Four agencies were targeted by the committee; the Department of the Treasury, the Federal Trade Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, along with five crypto exchanges – Coinbase, FTX, Binance.US, Kraken, and KuCoin.
The purpose of the letters was to request any information and documents about what steps are being taken, if any, to safeguard consumers against scams and instances of cryptocurrency-related fraud.
In the letters, Rep. Raja Krishnamoorthi, D.-Ill., Chair of the Subcommittee on Economic and Consumer Policy, noted that “As stories of skyrocketing prices and overnight riches have attracted both professional and amateur investors to cryptocurrencies, scammers have cashed in.”
“The lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology make cryptocurrency a preferred transaction method for scammers,” Krishnamoorthi stated.
According to research from the Federal Trade Commission (FTC), more than $1 billion in crypto has been lost to fraud since the start of 2021, affecting more than 46,000 individuals.
The letters have asked the federal agencies and crypto exchanges contacted to respond with information about what they are doing to protect consumers by Sept. 12. The responses will be used to help craft legislative solutions, according to the committee.
More specifically, the committee is asking crypto exchanges to produce documents dated as far back as Jan. 1, 2009, that detail their efforts to combat crypto scams and fraud. They are also seeking information regarding any attempts made to “identify, investigate, and remove or flag potentially fraudulent digital assets or accounts.”
Documents that highlight discussions around “whether to adopt more stringent policies” were also requested.
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Funds on centralized platforms are at risk
The collapse of several centralized platforms in 2022, including Voyager Digital and Celsius, has brought concerns over the safety of cryptos held by centralized entities to the forefront and spurred the committee into taking action to help protect consumers.
The now bankrupt platforms have put a spotlight on the question of who owns cryptocurrency assets when a custodial business goes out of business. As its stands currently with these two firms, customers are considered unsecured creditors, rather than federally-insured bank depositors, meaning there is no guarantee they will get any of their money back.
More than anything, regulators are looking to establish clear guidance that they can provide to consumers in their interactions with private-sector entities moving forward.
“Without clear definitions and guidance, agencies will continue their infighting and will be unable effectively to implement consumer and investor protections related to cryptocurrencies and the exchanges on which they are traded,” Krishnamoorthi said.
