US Regulatory Agencies Look to Concert Efforts on Cryptocurrencies
The US Securities and Exchange Commission (SEC) and US Commodity Futures Trading Commission (CFTC) Chairs, Jay Clayton and Christopher Giancarlo, testified infront of the US Senate last Tuesday in a session that looked to address concerns about virtual currencies. While the SEC and CFTC promised to protect US investors from fraudulent Initial Coin Offerings (ICOs), it was the shared view amongst the two regulators that they currently lack sufficient legislative powers, and that a broader coordinated effort with other agencies such as the Financial Crimes Enforcement Network (FinCEN) would be required. But will it be enough with the global outreach of cryptocurrencies, and the fairly self-side-lined regulators around the world?
CFTC Chair Christopher Giancarlo was heralded by many as a new hero after the Bitcoin and cryptocurrency community tuned in to listen to the Senate hearing on virtual currencies last week. Mr Giancarlo who was seemingly upbeat about the prospect said “The 20-year “do-no-harm” regulation on the internet brought huge investments in internet companies and infrastructure. It brought mass adaptation, innovative technologies and revolutionized almost every aspect of life. I believe that we should also apply this “do no harm” regulation to distributed ledger technology”. Mr Giancarlo pointed out that regulating a market like Bitcoin and cryptocurrencies is a challenge that "requires new thinking" due to its international nature.
And his SEC counterpart Mr Clayton didn’t take a hard-line either against cryptocurrencies but stated that “semantic gymnastics” on whether or not a cryptocurrency is a security will not be tolerated by his agency. And most of the cryptocurrencies he has seen, are indeed securities.
But the global nature of cryptocurrencies and ICOs that have raised over $5Bn since 2017 (see graph) make a single country, let alone a single regulator as the sole authority almost impossible. Some countries have harnessed the new economic paradigm, such as Switzerland, whilst others, like South Korea, have banned ICOs all-together.
ICOs Raise Over $7Bn Since 2017 ($)
Source: TokenData.io, Diar
An idea did emerge last month at the World Economic in Davos when French President Emmanuel Macron said “I am in favor of the IMF having the mandate to monitor the entire international financial system, of which some areas escape regulation, like bitcoin, cryptocurrencies or shadow banking, which can trigger crises.” But the IMF hasn’t said that it wants the role of the policeman as of yet.
And while the SEC has amped up its rhetoric and actions against possible fraudulent ICOs, so have other regulatory agencies – each with a different opinion on which law was in fact broken (see table below).
There was a consensus between the two regulators that they may actually require more legislative power. However, with the lack of coordination between regulatory authorities, it’s difficult to assess who would indeed have authority and oversight over the digital currencies and assets market (see table 2 below). And that’s not necessarily the mistake of the authorities as cryptocurrencies can fall in all of the various classifications – currency, property, asset or commodity. What next steps will be taken remain unclear.
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