Four U.S lawmakers on the Senate Banking Committee urged federal regulators to look into SoFi’s cryptocurrency trading activity, as they warned that SoFi’s listing could pose a serious risk to investors.
SoFi setting customers up for “a crypto pump-and-dump” hazard?
In open letters to the digital finance company SoFi and several bank regulators on Monday, 21 November 2022, Four U.S Democratic Senators expressed concern over SoFi’s crypto offering listing. They asked Bank regulators “review” SoFi’s crypto offerings.
U.S. senators Sherrod Brown (D-Ohio), Jack Reed (D-R.I.), Chris Van Holland (D-Md.), and Tina Smith (D-Minn.) asked SoFi to explain how it lists cryptocurrencies for sale, how it addresses customer complaints and how it determines “the appropriate credit, market and operational risk capital requirements for digital asset exposures.”
The letter especially expressed concerns about a blog post on the company’s website that cited its listing of dogecoin (DOGE), which could be a “pump and dump” hazard with “no special use case or features” and that it “might be among the most high-risk endeavours an investor can take.” despite SoFi offering this asset for several months and still offering it today.
The letter to the company continued as it inquired if SoFi lists any cryptocurrencies that are securities and, if so, whether SoFi is licensed to offer securities.
SoFi, a bank and crypto firm, rightly targeted for scrutiny
When SoFi started as a student loan company in 2011, it made its first foray into crypto through a partnership with Coinbase in 2019. It pitched itself as a financial services company with 3.9 million members as of Q1 2022.
SoFi is unique among institutions and is being singled out for regulatory scrutiny because it operates as a bank holding company and a crypto exchange through a subsidiary.
A separate letter to Federal officials expressed that SoFi’s “digital asset activities pose significant risks to both individual investors and safety and soundness.” As the company is not committed to “expand [its] impermissible activities,” but the company “has expanded its digital asset retail operations.” instead
The letter reminded lawmakers of the crypto meltdown earlier this year that resulted in the loss of over $1 trillion in value in a matter of weeks and how the “contagion in the banking system was limited because of regulatory guardrails,”
The letter expressed worry that “In the event of crypto-related exposures at SoFi Digital Assets ultimately require its parent company, bank holding company, or affiliated national bank to seek emergency liquidity or other financial assistance from the Federal Reserve or FDIC, taxpayers may be on the hook.”
“We take our commitments seriously,” SoFi spokesperson reacts.
In a statement, a SoFi spokesperson explained that it allows its members to buy and sell cryptocurrencies but does not provide any other type of crypto-related financing activity.
“SoFi takes our regulatory and compliance commitments seriously, including our non-bank operations within the digital assets space,” the spokesperson said. “We believe we have been fully compliant with the mandates of our bank license and all applicable laws.”
The spokesperson continued:
“Cryptocurrency remains a non-material component of our business. We look forward to sharing the requested information with the senators in a timely fashion.”