The road ahead for cryptocurrency regulation is a long and winding one. But some common themes are emerging from the din of voices calling for frameworks and guardrails, for the industry at large, and for holdings like bitcoin and stablecoins.
There’s the President’s Working Group on Financial Markets, which brings together a wide-ranging roster of regulators, including the collective heads of the Treasury Department, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
And at the beginning of the month, the Working Group weighed in on the need to regulate at least one subset of crypto: in this case, stablecoins.
As PYMNTS reported recently, the regulators noted in their report that “if well-designed and appropriately regulated, stablecoins could support faster, more efficient and more inclusive payment options. Moreover, the transition to broader use of stablecoins as a means of payment could occur rapidly due to network effects or relationships between stablecoins and existing user bases or platforms.”
But these same regulators also noted that there needs to be greater oversight and that Congress needs to take action – and even as efforts progress here at home, the Treasury will push for international standards tied to anti-money laundering and combating financial terrorism.
The Risks Ahead
The risks are numerous, according to the Group, as stablecoins may skirt the traditional mechanisms of market integrity and investor protections – and there might be bank runs if there is a loss in confidence in the coins themselves and the assets backing those coins.
At a high level, and among the paper’s recommendations: Stablecoin issuers should be depository institutions that are regulated at the federal level and mandated to hold adequate reserves to meet redemption demands. There’s at least some authority in place for the Financial Stability Oversight Council to designate stablecoins as a systemic risk (and thus helping curb stablecoin issuance and activity) if needed.
The call for a wide-ranging, global framework is being echoed by a number of players within the industry. In just the past few days, we’ve seen proposals from exchanges like Binance – while Ripple, a crypto issuer, has chimed in with its own ideas of what a regulatory landscape might look like. Binance has issued 10 “fundamental rights” within crypto, which point the way to its own version and vision of a framework.
The 10 rights, according to a company blog post, indicate that “crypto regulation is inevitable. Users have the right to share their voice on how the industry should evolve with their blockchain platform of choice.” And in addition, the company said, “Binance is working with regulators and policymakers to support a global framework that protects users without limiting growth and innovation.”
The 10 rights do not offer strict guidelines, but speak a bit generally – contending, for example, that “responsible crypto platforms have an obligation to protect users from bad actors and implement Know Your Customer (KYC) processes to prevent financial crimes.” Elsewhere, the firm stated that “crypto users have the right to access exchanges that keep their funds secure, in safe custody with comprehensive deposit insurance.”
Ripple, which is in the midst of a legal battle with the SEC over the very existential nature of crypto – specifically, whether it’s a security or a currency – is planning a crypto trading platform for financial institutions (FIs), and has weighed in on regulations. But Ripple’s approach seems to differ from the aforementioned calls to create new standards and global frameworks.
The company said in its own document this week that existing frameworks – can protect stakeholders and foster innovation. Within those framework, the company pointed to ere, the company referenced the two proposals designed to work within the existing format, while adapting it to allow crypto and blockchain innovation.
More details: Ripple Plans Crypto Trading Platform for FIs in 2022
“The Securities Clarity Act (SCA) proposes a new term — ‘investment contract asset’ — and makes clear that such assets should be considered separate and distinct from any securities offerings they may have been a part of.” Separately, “the Digital Commodity Exchange Act (DCEA), which is complementary to the SCA … seeks to create a federal definition of ‘digital commodity exchanges’ and charges the CFTC with authority to register and oversee them, similar to the requirements in commodity derivatives markets,” the document states.
Digital currency exchange Coinbase last month also issued its own ideas regarding regulation. The company differs from the other recommendations in that it contends that a separate, single regulator (created in turn by Congress) should have oversight of the burgeoning market.
No clear path lies ahead for crypto regulation, though the surety is that more stringent oversight will come.