Bipartisan agreement is hard to come by in Washington, but there’s little daylight between Democrat Gary Gensler and his predecessor as Chairman of the Securities and Exchange Commission, Republican Jay Clayton, on the issue of cryptocurrency regulation.
The two colleagues discussed the necessity for cryptocurrency trading platforms to register with the SEC so the agency could bring better investor protection to these venues, during a fireside chat at the the Digital Asset Compliance & Market Integrity Summit on Wednesday.
“Platforms, whether they’re trading platforms, lending platforms, whether they call themselves centralized or they call themselves decentralized….are an important place for public policy and investor protection,” Gensler said at the event, staged by Solidus Labs, a company that offers crypto market surveillance services.
He added that when the SEC and trading platforms cannot come to an understanding, “we’re going to use the enforcement tool,” suing entities that fail to register with the agency. “But I think a better approach for these platforms…is to work to get registered within the law.”
The largest U.S.-based cryptocurrency exchanges, including Coinbase Global Inc.
Kraken Inc. and FTX US are regulated by various federal and state authorities, but not as securities exchanges. Advocates say that regulating crypto exchanges similarly to the way public stock exchanges or alternative trading systems are currently would bring greater protection for investors against fraud and manipulation.
“Chairman Gensler takes very seriously his mission to protect investors and he’s been very consistent in his view that offering trading products under the supervision of a federal market regulator best achieves that,” Mark Wetjen, FTX US’ head of policy and regulatory strategy told MarketWatch.
Coinbase and Kraken did not immediately respond to requests for comment.
Critics of the SEC’s approach argue that the regulatory framework for overseeing traditional securities exchanges are not suitable for venues where cryptocurrencies are traded.
Former SEC Chairman Clayton, who was appointed by President Trump in 2017 and served in the role through December of 2020 agreed with his successor that crypto exchanges and issuers must work harder to comply with existing securities laws, and that there as been a concerted strategy on the part of some in the industry to flout those laws during his tenure.
“In this marketplace, there were a lot of people who…thought they could throw a fastball by the regulators and decided that they were going to take their chances of pushing the regulatory envelope with the hope that regulation would come in that direction,” he said.
Perianne Boring, founder and president of the Chamber of Digital Commerce, a blockchain trade association, said on Twitter that the summit audience remained confused as to what Gensler and Clayton were asking exchanges and issuers to do.
In October, Coinbase issued a proposal for a new regulatory framework for cryptocurrency exchanges that would create a new category called “marketplaces for digital assets,” overseen by a entirely new agency or a separate division within one of the existing regulators.
Coinbase’s proposal posits that this new financial regulator would primarily be responsible for registering and supervising marketplaces for digital assets, or MDAs, to ensure against fraud and manipulation and to mandate that issuers of digital assets disclose relevant information to market participants. The new regulator would also oversee so-called initial coin offerings, which are often used to raise money for new ventures, similar to how public companies raise money by issuing stock.
Dan Gallagher, the chief legal officer of the online broker Robinhood Markets Inc.
which offers cryptocurrencies including bitcoin
criticized the idea of a new regulator as unrealistic in remarks last month.
Meanwhile, Marco Santori, chief legal officer for Kraken Digital Asset Exchange told Bloomberg in September that “you’re just living in a fantasy world if you don’t believe that the industry is going to face heavier, more Wall Street-like regulation from governments in the U.S. and abroad.”