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Laws drafted in the 1930s to facilitate effective oversight of our financial markets could not contemplate this technological revolution, Coinbase has highlighted in a new discussion paper calling for the U.S. to create a new crypto regulator.
Coinbase, a U.S.-based crypto-platform founded in 2012, has had its fair share of fallouts with its supervisory authorities.
In September, the company ended up in hot water with the Securities and Exchange Commission (SEC) over its plans to award users interest on the crypto-coins that they were not trading.
When the SEC issued a Wells notice indicating it was planning to take enforcement against the platform, the company responded with shock, using a blog to complain: "We could have simply launched the product but we chose not to. This is far from the norm in our industry. Other crypto companies have had lending products on the market for years and new lending products continue to launch as recently as last month, but Coinbase believes in the value of open and substantive dialogue with our regulators, so we took Lend to the SEC first."
However, almost immediately Coinbase conceded to the SEC, quietly discontinuing its Lend product.
Now, the crypto platform has begun to lobby for a new, specialised crypto regulator in the U.S., setting out its ideas in a discussion paper titled "Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership (dApp)".
dApp was written by Faryar Shirzad, the company’s chief policy officer, who himself once had the role of deputy national security advisor for international economic affairs at the White House.
In the paper, he calls for digital assets to be regulated under a separate framework from the existing financial system, as well as arguing that there should be one regulator at the federal level to do this.
“To avoid fragmented and inconsistent regulatory oversight of these unique and concurrent innovations, responsibility for digital assets markets should be assigned to a single federal regulator,” the report suggests.
The proposed supervisor would include responsibilities, such as overseeing a new registration process established for marketplaces trading digital assets, alongside appropriate disclosures to inform purchasers of digital assets.
As well as a new framework and separate regulator, the paper argues that cryptocurrency holders need to be empowered as well as protected, suggesting that to realize their full potential, marketplaces for digital assets must be interoperable with products and services across the crypto-economy.
“If fully realized, this can enshrine fair competition, responsible innovation, and promote a thriving consumer and developer ecosystem,” the paper says.
A need for regulatory certainty
Coinbase is far from the only entity that has had a difficult relationship with the authorities.
Throughout 2021, Binance, the Japan-based platform, has faced the ire of regulators globally. In June, the UK’s Financial Conduct Authority told consumers that Binance was not permitted to undertake any regulated activity in the country. Its announcement was followed by one from Italy’s securities regulator in July, as well as one from Germany’s Federal Financial Supervisory Authority (BaFin).
To top it off, the Dutch central bank sent out a warning in August that the company was not in compliance with the country’s anti-money laundering requirements.
Asian regulators have also been paying attention to the company. The Securities and Exchange Commission of Thailand (SEC) made a criminal complaint against Binance to the Economic Crime Suppression Division of the Royal Thai Police in July and Japan’s financial services watchdog slapped down the company for operating in the country without proper registration.
However, the burgeoning crypto industry does hold the possibility of opening up financial services to those that are currently excluded by more traditional pathways, notes the Coinbase paper.
“According to the University of Chicago, surveys show that a diverse group of Americans are availing of the unique and empowering financial opportunities that crypto affords,” the report says, arguing that this use case is more diverse and inclusive than “almost all other asset classes.”
Consumers see the opportunities of digital assets and the financial agency and empowerment they provide, the paper continues. “To help the public and the businesses that will provide the services for this new, thriving financial ecosystem, regulatory certainty for everyone is required.”
