Clearer Rules: CFTC Chair Voices Concerns Over SEC’s Crypto Regulation

The increased oversight by the US Securities and Exchange Commission (SEC) towards the crypto industry has prompted both the community and regulators to question the approach taken by the US watchdog. 

In a recent testimony before the US House Committee on Agriculture, the Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, highlighted the need for Congressional action to address the lack of federal regulation over the digital commodity market.

“Regulation by Enforcement” Is Unsustainable

Behnam emphasized that bringing this volatile market out of the shadows and into the regulatory fold would protect customers, ensure market resilience and stability, and prevent contagion to the traditional financial system. 

Behnam further claimed that the events over the past year have added urgency to these recommendations, as the bankruptcy of several large digital asset platforms erased billions of dollars in customer funds and multiple large market participants allegedly engaged in manipulative and abusive trading activity.

Furthermore, Behnam believes that these tools are necessary to prevent future crises and should be applied to the crypto industry. He suggests that the market should be subject to similar time-tested regulations focused on the protection of customer assets, surveillance of trading activity, prohibitions on conflicts of interest, and the imposition of stringent cybersecurity standards.

Moreover, lawmakers posed questions to the Commodity Futures Trading Commission Chair and a panel of industry experts. During the hearing, Behnam emphasized the need for more congressional authority to address crypto risks and establish clear policies.

Behnam noted that there is a “regulatory vacuum” and a “gap” in regulation over digital commodity assets and that while the CFTC and Securities and Exchange Commission should not avoid charging entities in violation of existing law, there is a need for more congressional authority to address these risks. He expressed concern that the current enforcement approach, which he described as “regulation by enforcement,” is not an appropriate way to govern a market, adequately protect customers, or promote innovation.

Behnam emphasized the importance of congressional action to address the lack of federal regulation over the crypto market. He noted that without clear and comprehensive regulations, there is a risk of financial instability concerns as the market grows and stabilizes. Behnam stressed that it is the responsibility of regulators to protect customers, ensure market stability, and prevent contagion to the traditional financial system.

Coinbase CEO Brian Armstrong has responded to the recent SEC complaint against the company, stating that they are proud to represent the industry in court to finally get some clarity around crypto rules. Armstrong highlighted several key points in defense of Coinbase, including the fact that the SEC reviewed their business and allowed them to become a public company in 2021.

Armstrong also emphasized that there is no clear path to “come in and register” with the SEC, which is why Coinbase rejects the vast majority of assets they review. Armstrong pointed out that the SEC and CFTC have made conflicting statements, and don’t even agree on what is a security and what is a commodity. This has led to confusion and uncertainty in the industry and is why the US Congress is introducing new legislation to fix the situation.

Armstrong criticized the SEC’s regulation by enforcement approach, which he believes is harming America. He stated that if Coinbase needs to avail themselves of the courts to get clarity, they will do so. He also emphasized that the Coinbase suit is very different from others out there, as the complaint filed against them is exclusively focused on what is or is not a security.

Despite the ongoing legal battle, Armstrong expressed confidence in Coinbase’s facts and the law and stated that they will get the job done. He encouraged the industry to keep moving forward and building and expressed faith that America will eventually get it right in the end.

Featured image from iStock, chart from TradingView.com 

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