Regulatory concerns about digital assets need to be addressed
The world of cryptocurrencies and digital assets has grown exponentially and become increasingly complex.
The market value of the digital asset ecosystem has grown significantly from around $ 500 billion in 2020 to nearly $ 3 billion in November 2021, according to data from CoinMarketCap.
However, as technology evolves rapidly, regulatory clarity at the national level, much of which would require the authority of Congress, has been slow to develop, according to Episode 14 of STA Trading Views: Digital Assets – Surveillance & Needed Regulatory Elements.
Currently, cryptocurrency markets lack a comprehensive, centralized regulatory framework, leaving investments in the digital asset space vulnerable to fraud, manipulation and abuse.
In the latest episode of STA Trading Views, Jim Toes, President and CEO of STA and Joe Schifano, Global Head of Regulatory Affairs, Eventus discussed the initial elements needed to regulate digital assets.
The two congressional hearings held in December on digital assets and stablecoins served as the backdrop to their discussion.
Schifano argued that there are three critical areas that should be addressed, and the first relates to stablecoins in general.
The president’s working group report on stablecoins noted some key risks and shortcomings with respect to stablecoins as a form of payment.
The report recommended that Congress move quickly to enact legislation and that legislation ensure that payments, stable coins and related arrangements are subject to some kind of federal prudential framework.
“I think part of that already exists, but it’s clear that there are risks and gaps,” Schifano said.
He added that the risks generally relate to market integrity and investor protection, financial integrity and illicit financial concerns, and prudential concerns over payments.
The second area highlighted by Schifano concerned definitional uncertainty.
“It’s about how we make sure the United States becomes the dominant player in the space, attracting the right kind of talent that keeps companies here and a leader in technological innovation,” he said.
“The clarity of the definition would be incredibly helpful. I think we should be able to come up with definitions and indicate a method to work closely with regulators to innovate within this regulatory framework. It could be reasonably designed to protect consumers and allow technological and financial innovation to advance, ”he said.
According to Schifano, the third critical area concerns regulator clarity.
He said there is the convergence of AML / CFT regulations of payment terms and SEC / CFTC jurisdiction.
For example, Coinbase Global, an exchange for cryptocurrency trading, suggested to Congress that the regulation of digital assets be assigned to one entity.
“Others have suggested a clear definition that could better distribute coverage among existing regulators like the SEC and CFTC,” Schifano said.
SEC Chairman Gary Gensler raised concerns about the lack of a regulatory framework for cryptocurrency exchanges, saying: “The exchanges trading these crypto assets do not have a regulatory framework… no protection against fraud or manipulation.
Schifano said that especially with regard to an exchange environment, an SRO (self-regulatory body) environment should be established.
“This type of organization can work closely with venues and prudential regulators to ensure market integrity. He can issue related guidance for compliance frameworks, provide guidance as needed as things arise and be that kind of go-between to help think through some of the thorny issues that arise, ”a- he concluded.