Productive crypto market requires regulation, investor education, experts say

Improved investor education and better regulation are two important steps experts want to implement in the digital currency market, as governments generally look to protect consumers who buy and sell within the risky asset class.

The Senate Banking Committee heard testimony Thursday from Melanie Senter Lubin, president of the North American Securities Administrators Association, and Gerri Walsh, senior vice president of Investor Education at the Financial Industry Regulatory Authority.

While lawmakers like Sens. Pat Toomey, R-Penn., and Sherrod Brown, D-Ohio, highlighted the Securities and Exchange Commission’s role in administering new regulations surrounding cryptocurrencies, expert witnesses also advocated for better investor and consumer education.

“To ensure that our markets continue to grow for the benefit of businesses and investors alike, we must do an even better job of fostering lasting confidence in and informed use of the regulated capital markets,” Lubin said. “Promoting lasting trust starts with making improvements in how we prevent and detect investor harm, and how we ensure that those charged with enforcing the laws have the tools needed to do the job.”

Walsh agreed, noting that fraudulent information about cryptocurrency products remains rife on social media platforms, with scams offering cryptocurrency payment options particularly popular. She also added that the lack of transparency and corresponding regulation in the digital currency market contributes to the rampant fraud around the industry.

“Bringing crypto and digital assets into this regulatory space can have extraordinarily extraordinary value for consumers and for the markets themselves, to the extent that you have disclosure, and our system is based on disclosure that is full and fair and not misleading. It adds value to our securities markets, she said.

Lubin agreed, saying that financial penalties such as fines can also help protect investors from and discourage cryptocurrency fraud.

“These penalties need to get into the range where they are high enough to act as a deterrent to bad behaviour,” she said.

In response to questions from Toomey, Lubin ultimately believed that crypto-lending products that lend digital currencies at high rates fit the description of securities, and thus fall under the SEC’s regulatory jurisdiction.

“This is a new category of assets that doesn’t look like any previous category of assets, and it’s a failure by Congress to provide that clarity. And it’s a failure by the SEC to not at least provide clarity in their interpretation,” said Toomey.

In a statement earlier in the hearing, Lubin said: “It’s very important for people to be able to assess and decide whether something is a certainty. So our job is to take the law and take the facts and take the case law and statutory law and apply it to what’s going on in any given situation. And most securities lawyers will take a look at that and say ‘yes, that’s an investment contract and that needs to be regulated.’

Until increased federal regulation comes, Lubin advocated for improved legislation that could protect consumers, such as the bill sponsored by Sen. Chris Van Hollen, D-Md., aimed at protecting seniors from financial fraud.

“There are never enough resources to go around with what we do. Industry fraudsters always have far more resources than regulators do, she said.

Walsh also said that investor education can further serve as a “complementary tool” in the absence of regulatory financial disclosures.

“We [FIRA] work with our other state securities regulators with the Securities and Exchange Commission, many other federal agencies and the network of national nonprofits to get the word out as widely as possible about the tactics criminals are using to separate people from their money, including in the digital asset space; » she testified.