The chairmen of two US regulatory agencies have written a joint statement expressing their concerns over the present state of the cryptocurrency markets.
Writing in an op-ed published in The Wall Street Journal, Securities and Exchange Commission (SEC) chief Jay Clayton and Commodity Futures Trading Commission (CFTC) head J. Christopher Giancarlo expressed their disapproval over the manner in which many market participants in the distributed ledger technology (DLT) space flout regulations and attempt to circumvent rules governing investor protection.
“[T]oday we are seeing substantial DLT-related market activity that shows little or no regard to our proven regulatory approach. This concerns us,” Clayton and Giancarlo wrote. “Some proponents of cryptocurrencies note that the jurisdiction of the CFTC and SEC over cryptocurrency transactions is limited and cite the absence of U.S. and other government market regulation as an investment attribute. Such claims should give prospective investors pause.”
Clayton and Giancarlo took lawyers, trading platforms, and financial services firms to task for their behavior, which the two regulators said “disturbed” them in many cases. In particular, they repeated the oft-stated-but-rarely-heeded statement that merely wrapping an investment product in new terminology does not exempt it from regulations governing securities and investor protection.
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“Market participants, including lawyers, trading venues and financial services firms, should be aware that we are disturbed by many examples of form being elevated over substance, with form-based arguments depriving investors of mandatory protections,” they said.
Notably, Clayton and Giancarlo said that they would like to “revisit” frameworks under which cryptocurrency exchanges other trading platforms have registered as payment services, which are regulated primarily at the state level and do not provide federal regulators with direct oversight.
“Many of the internet-based cryptocurrency-trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC,” they said. “We would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era.”
Both agencies have been steadily ramping up their oversight of the nascent blockchain space. Last week, the CFTC brought charges against several cryptocurrency-related investment schemes that regulators said were fraudulent, while the SEC has shut down several ICOs for failing to register as securities.
For Clayton, this op-ed marked the second time this week that he had issued public comments about the failure of market “gatekeepers” to act responsibly within the DLT space. On Monday, he said that, “particularly in the initial coin offering space, they can do better” and added that he had instructed SEC staff to be on “high alert” for “ICOs that may be contrary to the spirit of our securities laws.”
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