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Gary Gensler has said he is pushing for a single rulebook for crypto exchanges and reveals that the two most active US crypto regulators are close to signing a memorandum of understanding (MoU).
Gensler, chairman of the Securities and Exchange Commission (SEC), wants one rulebook for the crypto space to fill the gaps in regulatory oversight.
“I’m talking about one rulebook on the exchange that protects all trading regardless of the pair — [be it] a security token versus security token, security token versus commodity token, commodity token versus commodity token” to protect investors against fraud, front-running, manipulation and provides transparency over order books," he told the Financial Times.
A single rulebook would help address many of the challenges of the existing fragmented regulatory landscape.
To date, the US has been the fiercest actor in the world to crack down on harmful or unlawful crypto products, handing out 98 percent of the total fines ever imposed on crypto firms, new research by Elliptic shows.
However, the US regulatory landscape for crypto firms is highly fragmented, with several federal financial agencies sharing the oversight of different activities of crypto companies.
In this environment, the SEC has emerged as the most aggressive regulator.
According to Elliptic, the SEC’s enforcement actions account for more than 70 percent of all crypto-related monetary penalties collected by the US to date, while a further 24 percent of the fines were handed out by the SEC’s sister agency, the Commodity Futures Trading Commission (CFTC).
Although the SEC regulates securities and the CFTC derivatives, there might be cases where a crypto product could fall into the jurisdiction of both agencies.
For instance, as the regulator of derivatives, the CFTC may regulate derivatives on securities.
Therefore, if a digital asset is a security, further analysis is required to determine where the regulatory authority lies for a derivatives product on that digital asset, CFTC commissioner Dawn Stump has pointed out.
The two agencies are now working on an MoU, according to the FT, which means that if a token that represents a commodity is listed on a platform overseen by the SEC, the securities regulator would send that information over to the CFTC.
In addition to the SEC and the CFTC, to a lesser extent, the Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) have also issued fines against crypto firms for breaching anti-money laundering and sanctions regulations, respectively.
These fines amounted to $183.3m in total, 5.5 percent of the overall fines crypto firms have ever had to pay to US agencies, according to Elliptic.
However, with the recent crash of crypto prices, asset freezes and the slate of staff layoffs, the pressure is mounting on regulators to protect investors.
Collaboration between the many federal agencies on the oversight of crypto firms has been on the table for at least a year now.
Last summer, the main regulators came together to collaborate on the regulation of stablecoins, which led to the release of a landmark report last November.
Since then, leaders of the regulators have repeatedly spoken out underscoring the need for interagency coordination and a comprehensive regulatory approach to digital assets, which was also the main theme in President Joe Biden’s historic crypto executive order.
The SEC is now working with other federal financial regulators and is close to striking an MoU with the CFTC, according to the FT.
The initiative comes in parallel to a far-reaching congressional proposal that would potentially see the influence of the SEC curbed by placing the responsibility to oversee crypto markets under the CFTC.
This step, however, received a mixed reception from market participants.
Although some experts consider this a logical approach, given that most digital assets are more similar to commodities than to securities, others argue the crypto industry favours the CFTC because it is the smallest financial regulator with the smallest budget.
Without commenting on the actual proposal, the SEC chair warned that this could undermine existing protections in crypto markets.
“By getting that market integrity envelope, one rulebook on an exchange will really help the public,” Gensler told the FT.
“If this industry is going to take any path forward, it will build some better trust in these markets.”
