Crypto

SEC Chairman Urges ‘One Rule Book’ for Cryptocurrencies to Avoid Oversight Loopholes

The chairman of the US Securities and Exchange Commission is seeking to strike deals with other financial agencies to prevent crypto traders from slipping through the cracks of the fragmented US regulatory structure.

Gary Gensler told the Financial Times that he was speaking with his counterparts at the Commodity Futures Trading Commission about a formal agreement to ensure that trading in digital tokens had the proper safeguards and transparency.

His proposal comes as US authorities’ efforts to oversee cryptocurrencies become mired in Washington politics, which could reduce the SEC’s influence over digital assets. Lawmakers on Capitol Hill are rushing to clarify what is legal and who is responsible for oversight.

Historically, the SEC and CFTC have focused on different aspects of the financial markets and rarely work together. The SEC primarily oversees CFTC securities and derivatives; cryptocurrencies potentially extend to both markets.

At the same time, fines for enforcement actions are increasing. US regulators have levied $3.35 billion in crypto enforcement actions since the advent of Bitcoin in 2008, according to government data compiled by British cryptocurrency analytics firm Elliptic, including $179.7 million in the first six months of this year. The SEC accounted for more than 70 percent of the penalties.

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

If a token representing a commodity is listed on an SEC-supervised platform, the securities regulator would “send that information to the CFTC,” Gensler said. The CFTC declined to comment.

“I am talking about a rule book on the exchange that protects all transactions regardless of the pair: [be it] a security token vs. a security token, a security token vs. a commodity token, a commodity token vs. a commodity token” to protect investors against fraud, anticipatory manipulation and misrepresentation. transparency about order books, Gensler said.

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

Gensler has been one of the regulators calling for more oversight of cryptocurrencies, urging platforms to discuss whether they should register with his agency.

“By getting that market integrity envelope, a rule book on an exchange will really help the public,” he added. “If this industry is going to take any path forward, it will build more confidence in these markets.”

But a bipartisan bill introduced by US Senators Kirsten Gillibrand and Cynthia Lummis has proposed a crypto regulatory framework that would expand the CFTC’s powers, based on the assumption that most digital assets resemble commodities rather than values.

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

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

Regulation of crypto cash markets “could be a natural fit for us,” he said. The idea that “we’re not adequate I think is a little misaligned,” she added.

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

Both he and Gensler declined to comment on whether expanding the CFTC’s jurisdiction over crypto would create friction with the SEC or cause confusion.

Behnam said the legislation “would go a long way to clear up that very sensitive and difficult issue of which currencies are commodities and which are securities.”

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

At an event a few days later, Gensler stopped short of commenting on the bill, but warned against undermining existing protections in a “$100 trillion capital market.”

He added: “We don’t want” stock exchanges or mutual funds, “inadvertently going, ‘You know what? Want to be . . . outside of this regime’ which I think has been a huge boon to investors and economic growth over the last 90 years.

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