The top U.S. financial regulators want Congress to give them new powers to directly oversee trading in Bitcoin, the world's largest cryptocurrency.

In a Monday report, the heads of the Federal Reserve, the Treasury and other leading financial watchdogs said the government has limited ability to regulate crypto assets that aren't covered by securities laws. Although many tokens fall under the U.S. Securities and Exchange Commission's rules, some, such as Bitcoin, are not directly under any federal agency's jurisdiction.

"As a result, those markets may not feature robust rules and regulations designed to ensure orderly and transparent trading, to prevent conflicts of interest and market manipulation, and to protect investors and the economy more broadly," the Financial Stability Oversight Council said. FSOC also includes the SEC chair and the head of the Commodity Futures Trading Commission, which is vying for a bigger piece of the crypto regulatory action.

The report is the latest from the Biden administration to call for a more coordinated approach to regulating digital assets after years of patchwork oversight. The SEC claims turf over assets that are considered securities, the CFTC oversees derivatives on crypto and banking regulators also assert some powers.

Congress should also give regulators new powers to weigh in on a range of subjects, including conflicts of interest, abusive trading practices, recordkeeping requirements, segregation of customer assets, and cybersecurity, FSOC said in 100-plus-page report released on Monday. Legislation should also give agencies more enforcement and examination authority, the regulators said.

"Innovation without adequate regulation can result in significant disruption and harm to the financial system," Treasury Secretary Janet Yellen said during the virtual meeting.

There are multiple bills in Congress that would give the CFTC power to oversee Bitcoin and other commodity tokens, but the FSOC report didn't signal its support for any specific legislation. Those measures have the backing of many in industry because they don't want to be regulated by the SEC, which has tough investor-protection requirements.

FSOC also recommended that:

• Agencies assess the impact of plans to give retail customers direct access to digital-asset markets. The CFTC is currently considering a proposal from the U.S. arm of crypto trading giant FTX that would take the middleman out of Bitcoin and Ether futures trading.
• Congress create a regulatory framework for issuer of so-called crypto stablecoins, which are used as an on- and off-ramp to traditional money.
• Lawmakers give regulators power to look at the activities of affiliates and subsidiaries of crypto firms.
• Congress provide agencies with the funding they need to regulate crypto activities.
• Lawmakers give the Federal Housing Finance Agency and the National Credit Union Administration authority to take enforcement action against firms providing crypto-related services to banks.

Allyson Versprille reports for Bloomberg News.

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