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Democratic senators urge regulators to monitor SoFi crypto trading activity

Chairman Sherrod Brown (D-OH) questions Treasury Secretary Janet Yellen and Federal Reserve Chairman Powell during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, September 28, 2021.

Kevin Dietsch | pole | Reuters

Four Democratic lawmakers on the Senate Banking Committee urged federal regulators to take a look SoFi’s cryptocurrency trading activity in a letter on Monday, it warns “digital asset activities hold significant risks for both individual investors and safety and health.”

SoFi shares fell more than 6% on Monday afternoon.

In two separate letters, one to federal officials and another to SoFi CEO Anthony Noto, the lawmakers expressed deep concern about a lack of regulation in cryptocurrency markets.

“Over the past year, several crashes in the crypto market have wiped out trillions in value, including another major crash last week,” the letter to Noto said.

SoFi is unique among institutions singled out for regulatory scrutiny because it operates both as a bank holding company and as a crypto exchange, through a subsidiary.

SoFi bills itself as a digital financial services company with 3.9 million members as of Q1 2022. SoFi started as a student loan company in 2011. Since then, the San Francisco-based, Nasdaq-traded company made its first foray into crypto through a partnership with Coin base in 2019. But lawmakers balked at SoFi’s acquisition of Golden Pacific Bancorp in February 2022.

That acquisition turned SoFi into a bank holding company and subjected it to “consolidated supervision by the Federal Reserve,” according to lawmakers. It’s this new regulatory oversight that has prompted lawmakers’ objections to SoFi’s growing cryptocurrency offerings.

Bank holding companies must comply with strict regulations on the type of financial products they can offer. Heightened financial and risk controls mean SoFi’s crypto activities “pose significant risks to both individual investors and safety and health,” the lawmakers said.

The lawmakers – Senate Bench Chairman Sherrod Brown, D-Ohio, and fellow committee members Jack Reed, D-R.I., Chris Van Hollen D-Md., and Tina Smith D-Minn. — points to SoFi’s financial guidance as proof. Investor education materials from SoFi warn that a cryptocurrency offered on SoFi’s crypto platform, Dogecoin, “has no special use cases or features.” SoFi’s literature calls this a pump-and-dump scheme.

Offering products that the company knows are “pump-and-dump” flies in the face of SoFi’s new commitment to “fundamental principles of investor protection and safety and health,” lawmakers wrote.

In the letter to Noto, the Democrats said they were “concerned that SoFi’s continued impermissible digital asset activities demonstrate a failure to take its regulatory obligations seriously and to meet its obligations.” They urged leaders of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency to “ensure that SoFi complies with all consumer financial protection and banking regulations.”

“SoFi takes our regulatory and compliance obligations seriously, including our non-bank operations within the digital asset space,” a SoFi spokesperson said in a statement. “We believe we have fully complied with the mandates of our banking license and all applicable laws. In addition, we maintain consistent, constructive dialogue with each of our regulators. Cryptocurrency remains a non-material component of our business. We look forward to share the requested information with the Senators in a timely manner.”

The letters to regulators and SoFi come as crypto markets weather their worst crisis yet. The collapse of cryptocurrency exchange FTX and the connection FTX founder Sam Bankman-Fried had with US regulators has outraged Congress and the public.

Lawmakers demanded an explanation from SoFi about its risk management, credit, financial and compliance systems by Dec. 8. The company has already endured uproar over possible plans to forgive student loan balances, with shares down more than 24% since President Biden announced his intentions. .

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