Speaker Sherrod Brown (D-OH) questions Treasury Secretary Janet Yellen and Federal Reserve Chair Powell during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, in the Hart Senate Office Building in Washington , DC, September 28, 2021.
Kevin Deitch | Pool | Reuters
Four Democratic lawmakers on the Senate Banking Committee urged federal regulators to investigate SoFi’s cryptocurrency trading in a letter on Monday, warning that “activities in digital assets pose significant risks both to individual investors and to safety and stability.”
Shares of SoFi fell more than 6% on Monday afternoon.
“Over the past year, several crypto market crashes have wiped out trillions in value, including another massive crash last week,” the letter to Noto said.
SoFi is unique among the institutions selected for regulatory scrutiny because it operates both as a bank holding company and as a crypto exchange, through a subsidiary.
SoFi touts 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 partnership with Coinbase in 2019. But lawmakers advanced SoFi’s acquisition of Golden Pacific Bancorp in February 2022.
That acquisition turned SoFi into a bank holding company and, according to lawmakers, subjected it to “consolidated supervision by the Federal Reserve.” It’s this new regulatory oversight that has sparked lawmakers’ objections to SoFi’s expanding cryptocurrency offerings.
Bank holding companies must comply with strict regulations regarding the types of financial products they can offer. Enhanced financial and risk controls mean SoFi’s crypto activities “pose significant risks both to individual investors and to safety and stability,” the lawmakers said.
The lawmakers — Senate Banking Chairman Sherrod Brown, D-Ohio, and fellow committee members Jack Reed, D-R.I., Chris Van Hollen, D-Med., and Tina Smith, D-Minn. — cite SoFi’s financial guidelines as proof. Investor education materials from SoFi warn that a cryptocurrency offered on SoFi’s crypto platform, Dogecoin, has “no special use case or features.” The SoFi literature calls it a pump-and-dump scheme.
To offer products that the company knows are “pump and dump” is contrary to SoFi’s new commitment to “fundamental principles of investor protection and safety and soundness,” the lawmakers wrote.
In the letter to Noto, the Democrats said they were “concerned that SoFi’s continued unauthorized activities with digital assets demonstrate a failure to take seriously its regulatory commitments and adhere to its obligations.” They called on leaders of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to “ensure that SoFi complies with all consumer financial protection and banking regulations.”
“SoFi takes seriously our regulatory and compliance commitments, including our non-bank operations in 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. We also maintain consistent, constructive dialogue with each of our regulators. Cryptocurrency remains a non-essential component of our business. We look forward to sharing the requested information with senators in due course.”
The letters to regulators and SoFi come as crypto markets weather their worst crisis yet. The collapse of the FTX cryptocurrency exchange and the engagement FTX founder Sam Bankman-Fried had with US regulators drew the ire of Congress and the public.
Lawmakers have demanded an explanation from SoFi about its risk management, lending, finance and compliance systems by Dec. 8. The company has already suffered uproar over potential plans to forgive student loan balances, with shares down more than 24% since President Biden announced his intentions.
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