CFTC, SEC Chairs Fill Lawmakers in on Crypto Nuances; Little Talk About How to Regulate Space
U.S. lawmakers get the lowdown on cryptocurrencies from regulatory bodies, but offer few suggestions on how to regulate the space.
More coordination is needed among regulatory and intelligence agencies in dealing with the onslaught of cryptocurrencies.
This is one of the messages that came from a U.S. Senate hearing where the chairs of the U.S. Securities and Exchange Commission and the U.S. Commodities Futures Trading Commission discussed virtual currencies with members of Congress.
Chair Jay Clayton represented the SEC, while Chair Christopher Giancarlo represented the CFTC. They spoke before the Senate Committee on Banking, Housing and Urban Affairs.
While a hope of some crypto players about the hearing was that some meaningful direction would be given about how the agencies would regulate the space, that didn’t happen. Instead, it turned out to be a discussion that largely focused on filling in lawmakers about the nuances of cryptocurrencies.
Cluing in lawmakers
Members of the finance committee had a grip on what cryptocurrencies are, and they were highly concerned about ICOs. With their proliferation, and the many fraudulent ones that have surfaced, lawmakers questioned how ICOs were being handled by the agencies.
Neither the SEC nor the CFTC has jurisdiction over these offerings, which makes it a challenge to protect consumers from those that are fraudulent.
“Many ICOs are being conducted illegally. People say the law is not clear, but I don’t buy that for a second. People need to follow private placement rules or follow rules of securities.”
Lawmakers, like mainstream investors and even crypto enthusiasts, also wanted to know what was behind the volatility. Clayton minced no words, and simply said, “I don’t know.”
As an example of the volatility, we’ve watched Bitcoin’s price fall from about $17,000 at the beginning of the year, to just below $6,000 four weeks later.
One theory given came from Giancarlo , who told the panel of economists’ explanation.
“There is a correlation between Bitcoin’s value and the costs of mining Bitcoin.”
There has been considerable discussion about how nations can use cryptos to avoid paying U.S. sanctions. This is especially the case with Venezuela, Russia and North Korea. Lawmakers learned from the chairs that they are working with several other agencies to monitor such schemes.
These agencies include the U.S. Treasury Department, the Justice Department, and FinCEN. FinCEN, Financial Crimes Enforcement Network, is a part of the Treasury Department and is charged with safeguarding the financial system from illicit use and combat money laundering.
In addition to combating crimes related to foreign nations using cryptos to circumvent their sanctions-commitments to the U.S., there is another benefit that comes from these agencies coming together. They are better able to find ways to address regulating the industry, Clayton noted.
Getting the job done
When asked by a lawmaker what they needed to help protect consumers from bad actors in the crypto space, the chairs agreed that funding to hire additional staff members was one thing that was needed. In addition, they agreed with a lawmaker about legislation being needed to help them in their efforts.
At this point, the specifics about what legislation is needed hasn’t been nailed down. However, through the joint efforts with the other agencies, the CFTC and SEC chairs agreed that they will have more formal ideas to present to lawmakers in the future.
The chairs seemed content for now to handle fraudulent activity in the crypto space on a case-by-case basis, instead of through standard rules and/or regulations applicable just to the space. In a joint statement, they said:
"When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments."
As it has been whenever cryptocurrencies are discussed, Blockchain was the positive part of the discussion. The chairs and lawmakers agreed that the technology was one of the best parts of the crypto space because of its many applications.