SEC Chairman Urges 'Rulebook' For Cryptography To Avoid Oversight Gaps

SEC Chairman Urges ‘Rulebook’ For Cryptography To Avoid Oversight Gaps

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The chairman of the U.S. Securities and Exchange Commission is seeking to strike deals with other financial agencies to keep cryptocurrency operators from falling through the cracks of the fragmented U.S. regulatory structure.

Gary Gensler told the Financial Times that he is talking to his counterparts at the Commodity Futures Trading Commission about a formal agreement to ensure that trading in digital tokens has adequate safeguards and transparency.

His proposal comes as efforts by U.S. authorities to oversee cryptocurrencies become entangled in Washington politics, potentially reducing the SEC’s influence over digital assets. Capitol Hill lawmakers are racing to clarify what is legal and who is responsible for oversight.

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The SEC and CFTC have historically focused on different aspects of financial markets and rarely work in tandem. The SEC primarily oversees CFTC securities and derivatives; cryptocurrencies potentially straddle the two markets.

At the same time, fines resulting from enforcement measures are increasing. US regulators have raised $3.35 billion in crypto enforcement actions since the advent of Bitcoin in 2008, according to government data compiled by UK crypto analytics firm Elliptic, of which $179.7 million dollars in the first six months of this year. The SEC accounted for more than 70% of the sanctions.

Gensler said he was working on a “memorandum of understanding” with the CFTC, which he led from 2009 to 2013. The SEC has jurisdiction over which platforms list which tokens are considered securities.

If a token that represents a commodity is listed on a platform overseen by the SEC, the securities regulator “will send that information to the CFTC,” Gensler said. The CFTC declined to comment.

“I’m talking about an exchange rulebook that protects all exchanges, regardless of the pair – [be it] a security token against a security token, a security token against a commodity token, a commodity token against a commodity token” to protect investors against fraud, front-running, manipulation as well as transparency of order books, Gensler said.

The digital asset market has been gripped in recent months by the impact of falling prices. The price of bitcoin has fallen more than two-thirds from a record high of nearly $70,000 in November. Exchanges have laid off staff and some lending platforms have blocked customers from withdrawing assets.

Gensler has been one of the most vocal regulators calling for greater scrutiny of cryptocurrencies and has urged platforms to discuss whether to register with his agency.

“Getting that envelope of market integrity, a rulebook on an exchange will really help the public,” he added. “If this industry wants to move forward, it will build confidence in these markets.”

But a bipartisan bill introduced by U.S. Senators Kirsten Gillibrand and Cynthia Lummis has proposed a crypto regulatory framework that would expand the powers of the CFTC, based on the assumption that most digital assets look like commodities rather than to securities.

The agency has traditionally focused on commodity derivatives, such as futures and options, rather than commodities themselves.

Rostin Behnam, who was named CFTC chairman in January, told the FT earlier this year that there could be “hundreds, if not thousands” of commodity-qualified tokens, including bitcoin and ether. .

Regulating cash-based crypto markets “could be a natural fit for us,” he said. The idea “that we’re not suited, I think, is a little off,” he added.

“Markets are markets, whether it’s derivatives, stocks or fixed income,” Behnam said. “There is always a natural relationship between . . . derivatives in general and cash markets.

He and Gensler declined to comment on whether expanding CFTC jurisdiction over crypto would generate friction with the SEC or cause confusion.

Behnam said the legislation would “go a long way in clarifying this very delicate and difficult question of which coins constitute goods and which constitute securities.”

The Gillibrand and Lummis bill did “a really good job” of distinguishing between securities and commodity tokens, Behnam said at a conference earlier this month.

At an event a few days later, Gensler refrained from commenting on the bill, but cautioned against undermining existing protections in a “$100 billion capital market.”

He added, “We don’t want” stock exchanges or mutual funds, “inadvertently with the stroke of a pen, saying, ‘You know what? I want to be . . . outside of this regime” which I think has been very beneficial to investors and economic growth over the past 90 years.

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