The head of the US Securities and Exchange Commission is seeking agreements with other financial authorities to prevent cryptocurrency operators from slipping through the cracks of the US’s fragmented regulatory structure.
Gary Gensler told the Financial Times he is in talks with his colleagues at the Commodity Futures Trading Commission about a formal agreement to ensure digital token trading has proper safeguards and transparency.
His proposal comes as US agencies’ efforts to oversee cryptocurrencies become entangled in Washington politics, potentially reducing the SEC’s grip on digital assets. Lawmakers on Capitol Hill are rushing to clarify what is legal and who is responsible for oversight.
The SEC and CFTC have historically focused on different aspects of financial markets and rarely work together. The SEC primarily regulates securities and CFTC derivatives; Cryptocurrencies potentially span both markets.
At the same time, the fines from enforcement measures are increasing. U.S. regulators have collected $3.35 billion in crypto enforcement actions since Bitcoin’s advent in 2008, according to government data compiled by British crypto analytics firm Elliptic, including $179.7 million in the first six months of this year. The SEC accounted for more than 70 percent of the penalties.
Gensler said he was working on a “memorandum of understanding” with the CFTC, which he chaired from 2009 to 2013. The SEC has jurisdiction over platforms that list tokens that qualify as securities.
If a token representing a commodity is listed on an SEC-regulated platform, the securities regulator would “pass that information on to the CFTC,” Gensler said. The CFTC declined to comment.
“I’m talking about a set of rules in the exchange that protects all trades regardless of pair – [be it] a Security Token versus Security Token, Security Token versus Commodity Token, Commodity Token versus Commodity Token” to protect investors from fraud, front-running, manipulation and create transparency about order books, Gensler said.
The digital asset market has been gripped by the impact of falling prices over the past few months. Bitcoin price has fallen more than two-thirds from a record high of nearly $70,000 in November. Exchanges have laid off staff and some lending platforms have prevented customers from withdrawing assets.
Gensler has been one of the most vocal regulators calling for greater oversight of cryptocurrencies, urging platforms to discuss whether to register with his agency.
“By getting that market integrity envelope, a set of rules on an exchange will really help the public,” he added. “As this industry finds a way forward, it will build better confidence in these markets.”
But a bipartisan bill introduced by U.S. Senators Kirsten Gillibrand and Cynthia Lummis has proposed a crypto regulatory framework that would expand the CFTC’s powers based on the assumption that most digital assets resemble commodities rather than securities.
The agency has traditionally focused on commodity derivatives, such as futures and options, rather than commodities themselves.
Rostin Behnam, who was appointed CFTC chairman in January, told the FT earlier this year that there could be “hundreds, if not thousands” of tokens that qualify as commodities, including bitcoin and ether.
Regulating cash crypto markets “might be a natural fit for us,” he said. The idea that “we’re not suitable I think is wrong,” he added.
“Markets are markets, whether it’s derivatives, stocks or fixed income,” Behnam said. “There is always a natural relationship between . . . Derivatives in general and cash markets.”
Both he and Gensler declined to comment on whether expanding the CFTC’s jurisdiction over crypto would cause friction with the SEC or create confusion.
Behnam said the legislation “would go to great lengths to settle this very delicate and difficult issue of which coins represent commodities and which coins represent securities.”
The Gillibrand-Lummis bill did a “very good job” of distinguishing between securities and commodity brands, Behnam said at a conference earlier this month.
At an event a few days later, Gensler did not comment on the bill but warned it would undermine existing safeguards in a “$100,000 capital market.”
He added, “We don’t want ‘stock exchanges or mutual funds’ to accidentally say with the stroke of a pen, ‘You know what? I want to be . . . Outside of that regime, which I think has been of great benefit to investors and economic growth over the past 90 years.”