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Gary Gensler, current chairman of the Securities and Exchange Commission and former chairman of the Commodity Futures Trading Commission, said last week that he sees a significantly increased role for the SEC in regulating the cryptocurrency industry. Gensler made it clear that existing securities laws will continue to apply to the crypto sector, with the application of the Howey test remaining the key determining criterion for whether a particular cryptocurrency is, in fact, considered a security in the United States. The chairman also wanted to clarify that while improved regulation of centralized exchanges may be the most obvious path for the SEC, decentralized exchanges like Uniswap and Sushiswap are not beyond the commission’s reach.
The reaction from the crypto industry was more muted and supportive than expected. For an industry that has a reputation for occasionally resisting regulation, particularly that from traditional financial industry regulators, Gensler’s remarks were met with unexpected enthusiasm, with many crypto luminaries commenting on the need for substantive regulation to instill trust and transparency on the part of the industry. Gensler’s history of engagement with various major industry players likely plays a role in the better-than-average reception of his comments.
Gensler’s remarks underscored the need to reduce “regulatory arbitrage,” the practice of place-shopping common in the industry in which entities and individuals circumvent financial crime and other regulatory requirements through offshore operations and/or incorporation. The SEC previously issued guidance that coins offered internationally may still be securities under US law and may require strict regulatory oversight and administration when exchanged within the United States. By pursuing international coordination with other securities and financial services regulators, the SEC may be able to promote a more uniform and easy-to-understand global regulatory framework.
Mr. Gensler put special emphasis on stablecoins and DeFi protocols when he spoke at the Aspen Security Forum last week. These emerging areas are ripe for regulatory intervention, as activities that would be strictly prohibited in the traditional financial world, such as unregulated futures and gambling activities, alongside manipulative exchange activities, are common in the DeFi space. The industry will be watching with great interest as the SEC determines what controls must be applied to stablecoins and how reserve requirements will be managed and administered. The role that the securities (rather than banking) regulator will play in this evolving regulatory environment has yet to be clearly defined.
While Gensler’s comments generally struck a positive chord with business stakeholders, one group was left out: those who would like to launch a US-based crypto ETF. For the first time, the chairman expressed an open preference for the development of a regulatory infrastructure related to crypto futures and trust-based investments, rather than exchange-traded funds.
FinCEN appoints Himamauli Das as Acting Director
With the recently announced departure of Micahel Mosier, FinCEN has been searching for a replacement to lead the US financial intelligence unit. Himamauli Das will become Acting Director of the Network and was most recently employed as Senior Executive Director and Co-Head of the CFIUS Advisory Series at K2 Integrity. Prior to his life in the private sector, Das gained experience at the National Security Council, the National Economic Council. Ministry of Finance and State Department.
🇺🇦 Ukraine will allow crypto payments
Regulators in Ukraine, which has been at the forefront of crypto regulatory developments of late, announced this week that it will be “perfectly legal to pay in cryptocurrencies” as long as those payments are made through the same non-tender – tender conversion process that payments in non-Ukrainian currencies are currently subject to. This clarified legislation is expected to pave the way for an explosion of new crypto businesses in Ukraine, as regulatory risk and legal barriers are significantly reduced. When allowing the facilitation of crypto payments, tools such as Navigator and Lens from Elliptic are key to ensuring that bad actors are unable to exploit the payment tool for nefarious purposes.
New York City is investigating the use of Blockchain technology to stop fraud
The unreliable and semi-permanent nature of blockchain technology can be exploited by United States financial capital in an effort to mitigate land title fraud. The New York City Department of Finance will team up with private sector partner Medici Land Governance to develop a blockchain prototype to store deed records and ensure transparent and fair conduct of property transactions. If the pilot program proves successful, a production version of the technology could be launched in the future to simplify and streamline the process of reviewing land titles in all city property records.
Missed our last week’s update? See here: IMF to increase its monitoring of virtual assets
Did you know…? In 2021, we will add support for four new blockchains and 38 new ERC20s for you to browse Navigator and Lens.
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