The top US securities regulator will testify that he is “open” to federal regulation of cryptocurrency exchanges, according to a transcript of his prepared testimony.
Jay Clayton, chairman of the Securities and Exchange Commission (SEC), will make this statement at a Feb. 6 hearing before the US Senate Committee on Banking, Housing, and Urban Affairs.
At present, US exchanges have generally registered as “money-transmission services,” which are regulated at the state level and do not fall under the direct purview of either the SEC or the Commodity Futures Trading Commission (CFTC). Consequently, regulations governing these businesses vary — often greatly — from state-to-state.
In his testimony, a prepared transcript of which has been published on the committee’s website, Chairman Clayton will express that he believes cryptocurrency trading platforms are functionally more akin to “securities, commodities, and currency exchanges,” which are regulated at the federal level and overseen by either the SEC or CFTC.
“Traditionally, from a function perspective, these money transfer services have not quoted prices or offered other services akin to securities, commodities and currency exchanges,” Clayton will testify before the committee. “In short, the currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind.”
Consequently, Clayton will testify before the committee that he is “open” to exploring with Congress whether cryptocurrency exchanges should be regulated at the federal level.
“As [CFTC] Chairman Giancarlo and I stated recently, we are open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate,” Clayton will testify. “We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space.
Throughout his remarks, which touch on a range of issues including initial coin offerings (ICOs) and cryptocurrency-based exchange-traded funds (ETFs), Clayton will stress that he believes federal oversight will foster innovation while also protecting investors.
The hearing will also feature testimony from CFTC Chairman J. Christopher Giancarlo. In his remarks, Chairman Giancarlo will state that while the current regulatory framework may not adequately protect investors, any federal regulation of cryptocurrency exchanges should be “carefully tailored” to specific risks such as fraud and market manipulation and should strive to “do no harm” to the burgeoning digital ledger technology (DLT) space.
“Appropriate federal oversight may include data reporting, capital requirements, cybersecurity standards, measures to prevent fraud and price manipulation and anti-money laundering and ‘know your customer’ protections,” he will testify. “Overall, a rationalized federal framework may be more effective and efficient in ensuring the integrity of the underlying market.”
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