By Bernice Nyambura
-July 9, 2021
The US Securities and Exchange Commission (SEC) has up until July 28 to figure out a crypto regulatory framework for protecting US citizens with an interest in cryptocurrency investments.
This is according to an open letter written to SEC chair Gary Gensler by the US Senior democratic senator for Massachusetts Elizabeth Warren. Speaking as the Chair of the Subcommittee on Economic Policy under the Senate Banking Committee, Warren, who is often publicly skeptical of cryptocurrencies, has given the SEC less than a month to detail its authority over cryptocurrency in the country.
According to the letter, Warren also wants to know whether Congress needs to intervene to ensure that the SEC has the proper authority to close the existing regulatory gaps that expose crypto investors and consumers to danger in the volatile crypto market.
“The harms to consumers as a result of this under-regulated market are real and continue to Proliferate in the absence of effective SEC regulations.”
Warren: Many Crypto-Exchanges Operate In Regulatory Grey Areas
Warren said that among other concerns, crypto exchanges are the primary concern about the emerging digital assets class. Not only can they disappear with people’s assets, but such exchanges can also escape federal regulation if the asset on offer doesn’t qualify as a security under federal law.
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“Exchanges do not have a regulatory framework at the SEC or at our sister agency, the Commodities Futures Trading Commission and as a result, there’s really no protection around fraud or manipulation.”
This leaves exchanges only under the basic state-level regulations for payment services and money transfers, which are insufficient to oversee the sophisticated crypto transactions landscape, the letter highlighted.
“The lack of regulations ensures that investors have no way of knowing whether the trading volume and prices they report reflect real activity or market manipulation.”
What Is Warren Asking Of the SEC?
Warren said that since the crypto market is growing rapidly, basic protections are unsustainable, and the SEC needs to answer five questions in the three stipulated weeks. First, the SEC should elaborate on whether exchanges are “operating in a fair, orderly and efficient manner.”
Secondly, the SEC needs a standard definition for crypto-assets and highlights their differences to assets on the traditional stock market. Third, Warren wants the SEC to compare its authority over crypto assets to its authority over traditional market assets.
Additionally, what measures can the SEC take to regulate foreign exchanges like Binance which lack physical addresses but are available to everyone online?
”…to what extent is international coordination needed to address gaps in the regulation of cryptocurrency exchanges and ensure the protection of investors and consumers in the United States?”
Lastly, Warren said that the SEC should explain its understanding of DeFi and its stand on decentralized exchanges and the decentralized derivatives markets
After bashing Bitcoin, Sen. Elizabeth Warren calls on the SEC to take a hard look at crypto exchanges
- Sen Elizabeth Warren is calling on the Securities and Exchange Commission (SEC) to assess cryptocurrency exchanges in relation to the U.S. financial markets and any risks they potentially pose to consumers.
- The initiative comes weeks after the Senator bashed Bitcoin for its energy consumption but with adoption ever-growing, the government has had to adjust its approach.
Sen Elizabeth Warren has taken a keen interest in the cryptocurrency market. On Thursday, Warren wrote a letter to the Securities and Exchange Commission (SEC). In it, she expressed great concern over ‘regulatory gaps’ in the cryptocurrency market that extend to the crypto exchanges where most investors buy, sell and store their digital assets.
The Democratic senator noted that the lack of clear regulations on the exchanges posed a threat not only to the larger financial markets but also to the consumers who entrusted their investments to these exchanges. “The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps and ensure that every investor has access to a safe cryptocurrency marketplace,” she added.
Beginning late last year, the cryptocurrency market has witnessed huge demand. During this time, regulators have identified gaps that are partly caused by a lack of a proper classification of cryptocurrencies. With some cryptocurrencies on the borderline of being securities, this leaves exchanges exposed. While most of the activities of the exchange fall under the SEC overview, there’s a need for interagency cooperation involving the Commodity Futures Trading Commission, the Treasury Department and bank regulators.
Senator Elizabeth Warren who expects the SEC to take initiative before the end of the month wrote;
These regulatory gaps also extend to the way that cryptocurrency exchanges hold an individual’s crypto-assets, which would not be allowed on a traditional securities exchange,
She further added that the lack of ” common-sense regulations” has left consumers at the mercy of manipulators and fraudsters.
Since taking office SEC Chair Gary Gensler has expressed interest in regulating the space. He has called on Congress to give the SEC greater authority to regulate the crypto market. Prior comments on the market suggest that he is open to new innovation and is unlikely to introduce regulations that limit growth in the space.
Activities from the two largest cryptocurrency exchanges- Coinbase and Binance has suggested a keen interest in embracing regulation. Brian Armstrong, the CEO of Coinbase, has in recent months travelled to Washington and met with government officials to discuss initiatives that the government and other players can take to grow and protect the space. His exchange, which is now publicly traded is at the forefront of making the space a safe and risk-free space. However, Binance despite not being under investigation in the US has come under regulatory fire in at least 6 countries including Singapore, Thailand and the UK. Although the CEO has reiterated that the exchange is willing to cooperate with authorities, the investigations have dented the firm’s reputation.
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