Yes, we are still talking about regulatory clarity

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A subcommittee within the House Financial Services Committee held a hearing on recent trading and volatility in the crypto markets last week which largely appeared to be a mission to investigate and explore this relatively young market. Interestingly, witnesses from both the crypto industry and outside of space agreed that some form of increased regulatory clarity is needed.

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What is regulatory clarity anyway?

The narrator

We continue to see the phrase “regulatory clarity” popping up during Congressional hearings on crypto investing, central bank digital currencies, and what possible regulations around this industry might look like. But what does this expression really mean?

Why is this important

Companies and supporters of the crypto industry see vague regulations as a major problem preventing startups from succeeding in the United States. Lawmakers are hearing it too. It is not yet clear what the outcome will be, however.

Break it

I have mentioned regulatory clarity a few times in this bulletin. In the United States at least, it’s sort of that ideal setting in which companies in the industry know what qualifies as a security versus what is for sure a commodity or what circumstances would allow a business to sell. tokens or paying employees using cryptocurrency, etc. in other words, regulatory clarity would require companies to know exactly what they are allowed to do.

So why aren’t we there yet? The main problem is that there is not a single federal regulator that can provide this oversight (or is willing to do so). The Securities and Exchange Commission (SEC) regulates securities, the Commodity Futures Trading Commission (CFTC) regulates everything else, the Office of the Comptroller of the Currency regulates national banks and trusts, and individual states decide which exchanges to grant grants to. licenses, etc. (it’s a bit of a simplification).

Witnesses at a House Financial Services Committee hearing in the crypto market last week advocated different approaches to this issue, but the overall conclusion is clear: regulators really need to issue some sort of concrete guidance on activities. authorized, or legislators must give an entity the power to do so.

We’re seeing this chorus more and more, especially with the recent bull market.

“A regulator says a crypto asset is a currency. Another said it’s a security. And the result is incredibly damaging to retail customers, ”said Christine Parker, one of the witnesses at the hearing. “This lack of clarity stifles innovation in the United States and frankly pushes retail clients to foreign exchanges. So, how to better regulate cryptos? “

Parker, a partner of Reed Smith LLP, advocated that Congress demand that the SEC and CFTC provide clearer rules.

“I don’t know if there is a right or a wrong way, but we have to do something,” said Perianne Boring, founder and president of the Digital Chamber of Commerce, after the hearing.

The solution may lie in existing laws, but with better and more consistent enforcement, said Rep. Tom Emmer (R-Minn.).

Peter Van Valkenburgh, research director at the Coin Center and one of the witnesses at the hearing, said some regulators have already started to demonstrate how existing laws apply to the digital asset industry.

“Cryptocurrencies like bitcoin and ethereum are commodities, but many crypto assets meet the flexible definition of an investment contract and therefore are securities, which means their issuance and trading are regulated by the SEC. Cryptocurrency derivatives are regulated by the CFTC, ”he said.

Still, the tone of the audience was generally positive, industry insiders said.

“Today’s hearing was a good example of an education month on Capitol Hill. Democrats and Republicans have asked specific questions about securities law, regulatory clarity, consumer protection, ransomware and promoting innovation in the United States, ”said Ron Hammond, director of government relations at the Blockchain Association. “This audience was unique in terms of the number of members of Congress who vocally supported the technology and application of cryptocurrency compared to those who were skeptical.”

Boring noted that the participation of Representative Maxine Waters (D-Calif.) At the hearing is “a strong signal” that the entire committee continues to focus on crypto.

“It was more like a fact-finding mission,” she said.

In a statement, Coin Center communications director Neeraj Agrawal said the think tank was “happy to see so many members of Congress” continued to research the industry.

“Our best bet for strong policy results is a broad understanding of these technologies,” Agrawal said. “The growing number of policymakers with knowledge of cryptocurrency is a good sign.”

Biden’s rule

Changing of the guard

Legend: (name.) = Candidate, (rum.) = Rumor, (act.) = Interim, (inc.) = Incumbent (no replacement planned)

Still nothing really happened this week.

Elsewhere:

Outside of CoinDesk:

  • (Financial Time) “A growing number of banks” are considering issuing bonds using blockchain, reports the Financial Times.
  • (FATF) The Financial Action Task Force has released its second 12-month review of how countries are implementing its guidelines on virtual assets. My colleague Ian Allison has already reported on the highlights after the FATF plenary ended last month, but the full document is also worth reading.

If you have any ideas or questions on what I should discuss next week or any other comments you would like to share, please feel free to email me at [email protected] or find me on Twitter @nikhileshde.

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