Chairman Sherrod Brown (D-OH) questions Treasury Secretary Janet Yellen and Federal Reserve Chair Powell during a Senate Committee on Banking, Housing and Urban Affairs hearing on the CARES Act in the Hart Senate Office Building in Washington, DC September 28 2021
Kevin Dietsch | swimming pool | Reuters
Four Democratic lawmakers on the Senate Banking Committee are asking federal regulators to look into it SoFis cryptocurrency trading activities in a letter on Monday, warning that “digital asset activity poses significant risks both to individual investors and to security and soundness.”
SoFi shares are down more than 6% as of Monday afternoon.
In two separate letters, one to federal officials and another to SoFi CEO Anthony Noto, lawmakers expressed deep concerns about a lack of regulation in the cryptocurrency markets.
“Over the past year, multiple crashes in the crypto market have wiped out trillions in value, including another major crash over the past week,” the letter to Noto read.
SoFi is unique among the institutions selected for regulatory scrutiny as it operates as both a bank holding company and a crypto exchange through a subsidiary.
SoFi presents itself as a digital financial services company with 3.9 million members as of Q1 2022. SoFi started in 2011 as a student loan company. Since then, the San Francisco-based, Nasdaq-traded company has made its first foray into crypto through a partnership with coin base in 2019. But lawmakers refined SoFi’s February 2022 acquisition of Golden Pacific Bancorp.
That acquisition turned SoFi into a bank holding company and, according to lawmakers, placed it under “consolidated Federal Reserve oversight.” It is this new regulatory oversight that has prompted lawmakers to object to expanding SoFi’s cryptocurrency offering.
Bank holding companies must adhere to strict regulations on the types of financial products they can offer. Tightened financial and risk controls mean SoFi’s crypto operations “pose significant risks both to individual investors and to security and soundness,” according to lawmakers.
The lawmakers — Senate Banking Chair Sherrod Brown, D-Ohio, and fellow committee members Jack Reed, DR.I., Chris Van Hollen, D-Md., and Tina Smith, D-Minn. — refer to SoFi’s financial guidance as evidence. SoFi investor briefing warns that a cryptocurrency offered on SoFi’s crypto platform, Dogecoin, has “no particular use cases or features.” The SoFi literature calls it a pump-and-dump scheme.
Two offering products the company knows are “pump-and-dumps” contradict SoFi’s new commitment to “fundamental principles of investor protection and safety and soundness,” lawmakers wrote.
In the letter to Noto, Democrats said they were “concerned that SoFi’s continued improper activities in the digital assets space demonstrate a failure to take its regulatory obligations seriously and honor its commitments.” They called on officials at 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 regulations protecting consumer protection and banking.”
“SoFi takes our regulatory and compliance obligations seriously, including our non-bank digital assets activities,” a SoFi spokesman said in a statement. “We believe we have fully complied with our banking license and all applicable laws. In addition, we maintain a consistent, constructive dialogue with each of our regulators. Cryptocurrency remains an intangible part of our business. We look forward to sharing 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 implosion of cryptocurrency exchange FTX and FTX founder Sam Bankman-Fried’s involvement with US regulators has drawn the ire of Congress and the public.
Lawmakers have required SoFi to explain its risk management, credit, finance and compliance systems by December. 8. The company has already seen turmoil over possible student loan forgiving plans, with shares down over 24% since President Biden announced his intentions.
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