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 | Pool | Reuters
Four Democratic lawmakers on the Senate Banking Committee urged federal regulators to look into SoFi’s cryptocurrency trading activity in a letter on Monday, warning its “digital asset activities pose significant risks to both individual investors and safety and soundness.”
SoFi shares were down more than 6% Monday afternoon.
In two separate letters, one to federal officials and another to SoFi CEO Anthony Noto, the lawmakers expressed deep concerns over a lack of regulation in cryptocurrency markets.
“Over the past year, several meltdowns in the crypto market have wiped out trillions in value, including another huge crash last week,” the letter to Noto said.
SoFi is unique among institutions singled out for regulatory scrutiny because it operates as both a bank holding company and as a crypto exchange, through a subsidiary.
SoFi pitches itself as a digital financial services company with 3.9 million members as of Q1 2022. SoFi began 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 Coinbase in 2019. But lawmakers have honed in on SoFi’s February 2022 acquisition of Golden Pacific Bancorp.
That acquisition converted 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 prompted lawmakers’ objections to SoFi’s expanding cryptocurrency offerings.
Bank holding companies have to conform to strict regulations on the kinds of financial products they can offer. Heightened financial and risk controls mean that SoFi’s crypto activities “pose significant risks to both individual investors and safety and soundness,” the lawmakers said.
The lawmakers — Senate Banking Chair Sherrod Brown, D-Ohio, and fellow committee members Jack Reed, D-R.I., Chris Van Hollen D-Md., and Tina Smith D-Minn. — point to SoFi’s financial guidance as evidence. Investor education material from SoFi warns that a cryptocurrency offered on SoFi’s crypto platform, Dogecoin, has “no special use case or features.” SoFi’s literature calls it a pump-and-dump scheme.
To offer products that the company knows are “pump-and-dumps” flies in the face of SoFi’s new obligation to “fundamental principles of investor protection and safety and soundness,” lawmakers wrote.
In the letter to Noto, the Democrats said they are “concerned that SoFi’s continued impermissible digital asset activities demonstrate a failure to take seriously its regulatory commitments and to adhere to 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 commitments seriously, including our non-bank operations within the digital assets space,” a SoFi spokesperson said in a statement. “We believe we have been fully compliant with the mandates of our bank license and all applicable laws. Additionally, we maintain consistent, constructive dialogue with each of our regulators. Cryptocurrency remains a non-material component of our business. We look forward to sharing the requested information with the Senators in a timely fashion.”
The letters to regulators and SoFi come as crypto markets weather their worst crisis yet. The implosion of cryptocurrency exchange FTX and the engagement that FTX founder Sam Bankman-Fried had with U.S. regulators, have drawn the ire of Congress and the public.
Lawmakers have demanded an explanation from SoFi on its risk management, credit, financial and compliance systems by Dec. 8. The company has already endured tumult over potential plans to forgive student loan balances, with shares down over 24% since President Biden announced his intentions.
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