In its latest annual report, the Financial Stability Oversight Council, chaired by Treasury Secretary Janet Yellen, discussed the state of digital assets, and the regulation of the sector in much detail. Perhaps the standout of the report is the assessment that despite numerous regulatory actions, crypto-specific “protection does not exist” for consumers.

FSOC Calls on Congress to Fill Regulatory Gaps

In many ways, the issues identified in FSOC’s annual report harken back to the concerns raised in their document released in early October. According to the Council, the first issue with the current legislation is that the spot trading of digital assets that can’t be considered securities cannot adequately be regulated within the current “framework designed to ensure orderly and transparent trading, prevent conflicts of interest and market manipulation, and protect investors and the financial system more broadly.”

The report also highlights the problems arising from the lack of a comprehensive regulatory framework aimed at digital assets, despite the existence of recent efforts such as the White House’s September document. The Council also points to the dangers posed by certain cryptocurrency firms offering direct access to the markets to their users by integrating services such as broker-dealers.

Perhaps the most notable comment made within the report is that the current regulatory actions provide investors and customers engaged with digital assets with a false sense of security. According to the Council, most complaints filed by watchdogs target broader violations of the law and are not reflective of cryptocurrency-specific protections. Ultimately, FSOC recommends that regulators should continue enforcing applicable laws, but also that new legislation should be passed to fill the existing gaps.

Council members have continued to enforce existing rules and regulations applicable to crypto-asset activities over the past year, including actions related to unregistered offers and sales of crypto-asset securities, episodes of fraud and market manipulation, and false and misleading statements made directly or by implication, concerning the availability of federal deposit insurance for a given product. These are violations of the law, and have given customers the impression that they are protected by the government safety net when that protection does not exist. The Council’s Report on Digital Asset Financial Stability Risks and Regulation recommends that members continue to enforce existing laws and, in doing so, consider a set of general principles described in the report, including the principle of same activity, same risk, and same regulatory outcome

The Council Reports Investors Are Less Confident About Crypto

The Financial Stability Oversight Council report also states that investors and consumers are notably less confident about digital assets than in 2021. According to the document, only 21% of Americans would be comfortable with investing in cryptocurrencies in 2022, compared to 35% in 2021. Furthermore, the Council provides some discouraging data on the success of digital asset investments.

The report suggests that 46% of cryptocurrency owners feel their investment underperformed, while only 15% claim they did better than expected. The performance of digital asset investments is reflective of the current “crypto winter” which saw cryptocurrencies lose $2 trillion in market cap from 2021 to 2022.

The loss of investor confidence is also likely the result of major scandals that shook the sector throughout the year. In May, within a single day, the stablecoin UST lost its peg to the US dollar causing its sister token LUNA to lose 50% of its value. The collapse led to the loss of $300 billion in value across the entire cryptocurrency sector.

More recently, FTX, once considered among the largest cryptocurrency exchanges in the world, filed for bankruptcy after a Tweet-inspired bank run. The abuses identified at the company after its fall—like the misappropriation of billions of dollars of users’ funds—ultimately led to the arrest of the exchange’s former CEO Sam Bankman-Fried.

This article originally appeared on The Tokenist

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