Top American Regulators Call for New System to Deal with Cryptocurrencies
US regulators are to tell the Senate Banking Committee today that cryptocurrencies need more oversight, and potentially an entirely new regulatory system.
Scheduled to appear are Jay Clayton, chair of the Securities and Exchange Commission (SEC) and Christopher Giancarlo, chair of the Commodity Futures Trading Commission (CFTC). Both men have had to deal extensively with new cryptocurrency questions in recent months. Clayton has had to formulate a response to the booming ICO space, while Giancarlo has overseen the offering of Bitcoin futures on the CME and Cboe.
Of central concern is how to respond to the distinctive challenges of regulating a new asset class, if indeed cryptocurrencies can be called assets. Which taxes are applicable? Who is protect the investors? Currently no one authority has overall responsibility and regulation falls between the US Treasury Department, the SEC, the CFTC and individual states.
There is increasing acknowledgement that this patchwork approach has run its course. According to Giancarlo, “Virtual currencies … likely require more attentive regulatory oversight in key areas, especially to the extent that retail investors are attracted to this space.” Clayton adds that both the CFTC and SEC are “open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate”.
Top of the list for new regulation are cryptocurrency exchanges. These fall outside of current frameworks and if regulation exists at all it is simply state rules established for money transmission services. As Clayton describes it, “the currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind”.
The CFTC takes ownership of overseeing derivatives markets such as Bitcoin futures on the CME. However, they have no jurisdiction over the “spot” market (i.e. the underlying product, for instance Bitcoin). Giancarlo says that “Current law does not provide any U.S. federal regulator with such regulatory oversight authority over spot virtual currency platforms”.
Both the SEC and CFTC want to strike a balance between allowing innovation in the markets and protecting consumers and investors from volatility and bad actors.
In a joint statement published in the Wall Street Journal last month, America’s two top financial regulators described their challenge as “to set and enforce rules that foster innovation while promoting market integrity and confidence”.
With something entirely new like cryptocurrencies, this balancing act may take some time to perfect.
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