Senate Banking Committee Chairman Sherrod Brown urged Treasury Secretary Janet Yellen on Wednesday to work with lawmakers and financial regulators to help write legislation to rein in the cryptocurrency market in the wake of the collapse of crypto exchange FTX.
In a letter to the Treasury chief, Brown, D-Ohio, told Yellen to incorporate recommendations from the Financial Stability Oversight Committee, including legislation that would "create authorities for regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities," with financial regulators, such as the Securities and Exchange Commission and the Federal Reserve Board.
An Oct. 3 FSOC report noted gaps in the regulation of crypto asset activities.
Brown sent the letter the day before Congress holds its first hearing on FTX's collapse. The Senate Agriculture Committee has called Commodity Futures Trading Commission Chairman Rostin Behnam to testify Thursday on the firm's dramatic and swift failure. Brown intends to hold his own hearing on FTX and its founder, Sam Bankman-Fried, in December, a spokesperson previously told CNBC.
"As we continue to learn more details, the failure of this crypto exchange brings to mind the litany of financial firm failures due to the combination of reckless risk taking and misconduct," Brown wrote to Yellen. "It is crucial that risks in this area are contained and do not spillover into traditional financial markets and institutions, and we draw the correct lessons regarding customer and investor protection."
When asked for comment, the Treasury Department referred CNBC to comments Yellen made at The New York Times' DealBook Summit on Wednesday.
"To the extent that the crypto world could deliver faster, cheaper, safer transactions, we should be open to financial innovation," Yellen said. "That said, that's not what most of it has been about. And I strongly believed and continue to believe and I think everything we've lived through over the last couple of weeks, but earlier as well, says this is an industry that really needs to have adequate regulation. And it doesn't."
FTX filed for bankruptcy and its CEO, Bankman-Fried, stepped down earlier this month. The crypto giant was valued at $32 billion.
In his letter, Brown warned that "FTX's connections to other risky crypto firms likely deepened its losses and continue to send shock waves to other entities" and that the company "failed to exercise basic corporate controls or risk management over its operations."
Close on FTX's heels, crypto firm BlockFi filed for bankruptcy on Monday. The company listed an outstanding $275 million loan to FTX US in the filing.
Each company's failure endangered more than 200,000 creditors.
Brown encouraged partnership between Congress, Treasury and the White House, even referencing the Treasury's coordination with the President's Working Group on Financial Markets. The group recommended legislation to regulate stablecoins, a brand of cryptocurrency, in a Nov. 1 report.
"Congress and the financial regulators must work to get all of this right. As more crypto failures occur, the age-old adage is more true than ever — if it seems too good to be true, it probably is," Brown wrote.