Yellen is calling for 'tech neutral' crypto regulation focused on potential risks

Treasury Secretary Janet Yellen on Thursday said regulating crypto should focus squarely on the risks it poses to consumers and businesses, not the technology.

In her first major comments on crypto, Yellen reinforced the Biden administration’s approach to the fast-growing technological trend that's upending the global financial system, which seeks to balance encouraging innovation with guarding against risk.

Yellen said regulations “need to adjust” in the face of new technologies, “but that process should be guided by the risks associated with the services provided to households and businesses, not the underlying technology” in a speech at American University’s Kogod School of Business' Center for Innovation.

“Wherever possible, regulation should be ‘tech neutral,’” she said. “Consumers, investors and businesses should be protected from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger.”

Yellen reaffirmed the Biden administration’s view of crypto as a ground-breaking technical innovation. Major crypto companies have warned that regulation could stifle that innovation and cause the U.S. to fall behind other countries, but she argued that any changes in U.S. regulations must be based on the goal of protecting consumers and businesses.

Those protections include principles and policies already in place in traditional finance. For example, “firms that hold customer assets should be required to ensure those assets are not lost, stolen, or used without the customer’s permission,” she said.

The Treasury Department “will work to make sure consumers, investors and businesses have adequate protections from fraud and theft, privacy and data breaches, and unfair and abusive practices,” she said. "Great care must also be applied to ensure innovations do not cause disparate harm to vulnerable communities or exacerbate social, racial or economic inequities."

Yellen also addressed the proposal to create an official U.S. digital dollar, which she said must be done “in the context of the central role the dollar plays in the world economy.”

“We have a strong interest in ensuring that innovation does not lead to a fragmentation in international payment architectures and that the development of digital asset technologies is consistent with our values and laws,” she said.