BITCOIN STRADDLES $36K MARK OVERNIGHT IN VOLATILE TRADING Treasury Secretary Janet Yellen has suggested the U.S. framework isn’t “up to the task” of regulating cryptocurrencies. The comptroller of the currency, Michael J. Hsu, noted the limitations inherent in a “fragmented agency-by-agency approach,” and Chairman Gary Gensler of the Securities and Exchange Commission lamented that because cryptocurrency exchanges lack a market regulator, there’s “no protection around fraud or manipulation.” Others have called for a ban on cryptocurrencies.
Innovation is rarely smooth or predictable. With a digital revolution under way in the financial services industry, a sector of the economy where the thirst for innovation and profit can never be quenched, there’s also a serious risk of both overregulation and underregulation. Policy makers would be wise to ground their efforts in the principal objectives underpinning existing financial regulations: financial stability, deep and efficient funding markets across the spectrum of debt and equity, and the prevention of fraud and illicit activity. Many new digital technologies are designed to perform other well-understood financial activities, including payments and record keeping. Regulators have overseen these functions for decades and have deep knowledge of their importance and how they work within our financial ecosystem.
GET FOX BUSINESS ON THE GO BY CLICKING HERE Existing regulatory frameworks provide the tools to address many of the risks of new technologies without stifling their promise. If applying these frameworks reveals outdated requirements, such as a mandate to use paper records or other outmoded technologies, including for governmental functions such as recording mortgages and security interests, then regulators should remove them. If coordinated analysis by national and international authorities reveals a regulatory gap, it should be filled. But we shouldn’t begin by assuming a need to reinvent the regulatory regime.
Crypto entrepreneurs seeking capital touted initial coin offerings, or ICOs, as a new, efficient (read unregulated) means to raise money for ventures. Yet their function was neither new nor unregulated. In function, ICOs were securities offerings, and in 2017 the SEC rightly stepped in to regulate them in accordance with longstanding and well-understood federal securities laws. The linchpin of this approach is to identify the functions a new product or process is performing. We should look past superficial labels and ask how a token, digital wallet, cryptocurrency or crypto exchange is being used and what existing instrument or process the new technology competes with, complements or aims to replace—and then regulate it accordingly.
TRUMP: BITCOIN’S A SCAM, US DOLLAR SHOULD DOMINATE As a historic example, “bearer bonds” are illuminating. These instruments provided for the payment of cash to the holder upon presentation to the issuer outside of the banking and brokerage systems, providing fertile ground for money laundering, tax evasion and bribery. Regulatory coordination across Treasury, the Federal Reserve, the SEC and their international counterparts largely brought this market to a close without adversely affecting the corporate bond market, which has flourished in the past decades. The same approach can be applied to new instruments that present similar risks, such as transferring bitcoin using an anonymous wallet.
First, which regulators will regulate which types of digital assets and financial technologies? Roles and jurisdictions will overlap, as they do now when, for example, securities held in a brokerage account are used to facilitate an international payment where the SEC, the Fed and the Treasury have various important interests. But clarity would make markets more efficient while deterring efforts to circumvent regulation. These efforts aren’t yet coordinated or proactive enough to meet the challenge. Financial regulators and economic policy makers need to set out an agreed-upon plan to deal with the digitization of assets and financial technologies that is based on the current regulatory framework. This effort should address at least three pressing issues: Policy makers’ efforts to come to grips with questions about the future of money, payments and credit are in various stages of maturity. The Federal Reserve is studying the desirability and feasibility of issuing a digital dollar. A bill pending in Congress would direct the SEC and Commodity Futures Trading Commission to collaborate on cryptocurrency regulation.
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