SEC Makes Progress in Regulating Cryptos and Exchanges

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The US Securities and Exchange Commission (SEC) seems to be trying very hard to make another move for blockchain, FinTech and cryptocurrency world. The regulatory body has been trying to understand cryptocurrencies since long. Now, SEC is preparing to hold a public FinTech forum on blockchain in May 2019.

Also, according to the paper published on 18 March 2018 by former CFTC Chairman Timothy Massad, the large gap in crypto-regulations in the US has led to repeated frauds and weak investor protection in the cryptocurrency ecosystem.

Due to the highly technical nature of digital currencies and technology behind it, the area long operated as a sort of financial Wild West. The consumers and investors falling prey to overly risky investments and outright frauds. However, since November 2018, the US SEC has issued at least 4cryptocurrency related actions and put the industry on notice that it will be watching its actions.

SEC regulating cryptos and exchanges

Regulations and compliance in the cryptocurrency industry have been a matter of debate all over the world. The fact that digital currencies are barely 10 years old, international financial watchdogs have found it hard to classify this emerging asset class under regulations.

In a paper titled “It’s time to strengthen the regulation of crypto-assets,” Former CFTC chairman Massad stresses the need for clear and transparent crypto regulations. He also mentions to clarity regarding regulations which can mitigate the risk of crypto being used to sponsor unlawful activities and also reduce the risk of cyber frauds.

Decentralized cryptocurrencies transcend international boundaries and jurisdictions. As a result of which, regulatory bodies in the US such as the US SEC and the CFTC don’t have a complete authority or enough authority over them.

This lack of authority has made cryptocurrencies a favorite weapon for criminals. A number of crypto cyber-attacks have taken place in recent times where the hackers were able to successfully run away with investors’ money without ever having to pay for it.

He also mentioned that:

“Crypto institutions are small compared to banking, securities and derivatives markets, but they do not operate in isolation; they have many connections with the broader financial system. A cyber-attack on a crypto institution could lead to collateral damage elsewhere.”

In his paper, Massad told that due to lax regulatory and compliance infrastructure for cryptocurrency exchanges and trading platforms, the cases of fraud and conflict of interest run widespread in the industry.
Massad also mentions that various cryptocurrency exchanges don’t have a high-security feature in place and may operate without enough assets.

How to bring more transparency?

Several recommendations can be taken as reference points by the US SEC and the CFTC to streamline regulating cryptos and exchanges. According to him, both authorities must have complete regulatory oversight over the offering, distribution and trading cryptocurrencies. He addressed the SEC and believes that the regulatory body should pass legislation to make way for new and existing crypto-centric authorities.

Another vital point that Massad highlights in his paper are that instead of delegating or deferring to state law in regulating crypto assets, the Federal Government should aim to establish a uniform national regulatory framework as the market for cryptocurrencies has an international appeal.

SEC public forum on FinTech and blockchain

The US SEC has announced that some of its staff will hold a forum on DLT and digital assets on 31 May 2019. Some time ago, the SEC created the Strategic Hub for Innovation and FinTech as an effort to better understand the financial technologies and blockchain.

The upcoming forum will be the second one organized by the agency. Many were convinced that the SEC felt the pressure to create a unit such as the FinHub since it has been rejecting Bitcoin ETFs since long. However, the SEC is working to address key questions and issues that FinTech leaders, blockchain developers, and cryptocurrency enthusiasts might have. The panel will include professionals and academicians, who will discuss topics such as ICOs, DLT innovations, digital asset platforms, etc.

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