2018-02-06 SEC and CFTC on Crypto Oversight: Key Takeaways
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On February 6, 2018, the Committee on Banking, Housing, and Urban Affairs held a hearing on “Virtual Currencies: the Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.” Ahead of the hearing, the SEC’s Chairman Jay Clayton and the CFTC’s Chairman Christopher Giancarlo released their written testimony, available here (SEC) and here (CFTC).
The key takeaways from both statements and Clayton’s and Giancarlo’s live testimony before the Committee are as follows:
- The regulators recognize that “the distributed ledger technology (DLT) . . . is likely to have a broad and lasting impact on global financial markets in payments, banking, securities settlement, title recording, cyber security and trade reporting and analysis.”
- Neither the SEC nor the CFTC wants to stifle innovation and growth. “The SEC and the CFTC, as federal market regulators, are charged with establishing a regulatory environment for investors and market participants that foster innovation, market integrity and ultimately confidence,” said Clayton in his written submission.
- Yet, they do want to protect “those who invest their hard-earned money in opportunities that fall within the scope of the federal securities [and commodities trading] laws,” as many ICOs and virtual currency exchanges, respectively, do.
- At this time, the regulatory response must start with consumer education, and to that end, both agencies have issued an unprecedented amount of information concerning ICOs and virtual currencies and have warned investors of the lack of the legal and market protections that are available to regulated market participants.
- The agencies are not rushing to implement new regulations. Comparing distributed ledger technology (DLT) to the Internet, the CFTC’s chief observed that just as “do no harm” was the right approach to development of the Internet, he believes that “do no harm” is the right overarching approach for DLT. Yet, to the extent that retail investors are attracted to this space, ICOs and virtual currencies likely require more attentive regulatory oversight in key areas to prevent fraud and manipulation. Whether that oversight manifests itself as increased regulation remains to be seen.
- At this time, both agencies – along with other Federal regulators including the FBI and the DOJ – are committed to enforcing the existing laws to improve investor protection in the virtual currency and ICO markets and focus on misconduct involving the spread of false information, market manipulation, brokerage account takeovers, hacking, and threats to trading platforms. Both the SEC and the CFTC have already brought a number of enforcement actions in connection with virtual currency trading and ICOs for alleged violations of the federal securities and commodities trading laws.
To paraphrase a no-longer-relevant 80s band and CFTC’s Giancarlo: the future’s so bright, but we don’t need to wear shades; all we need is the proper balance of sound policy, regulatory oversight, and private sector innovation to allow American markets to evolve in responsible ways and continue to grow our economy and increase prosperity. Today, this means fostering progress through education and enforcement of the existing laws to ensure the integrity of the growing market. We couldn’t agree more.