Crypto regulation: Can securities law keep pace with innovation?
Almost everyone agrees that the crypto-asset market needs more robust regulation, but there is much disagreement about what the laws should look like, as well as who should legislate and enforce them.
A key concern is whether cryptoassets are commodities or securities, which raises crucial questions about which governing organization should be responsible for oversight and enforcement. In addition, laws struggle to keep pace with technological innovation, thereby increasing the potential for fraud, deceit and bad practice.
Charles Whitehead, Myron C. Taylor Alumni Professor of Business Law at Cornell Law School and author of Cornell’s Securities Law Certificate, discussed the changing regulatory environment surrounding crypto and what’s next for the revolutionary technology in a recent webcast, “Crypto Regulation: Can Securities Laws Keeping up with innovation?”
In the US, there are several regulatory bodies that oversee crypto assets. Does this make sense, and if not, why?
It is referred to as the regulatory alphabet here in the USA: SEC (US Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), OCC (Office of the Comptroller of the Currency), CFPB (Consumer Financial Protection Bureau). It is a reflection of the way we think historically about how to regulate the industry. The problem is that over time the historical distinctions have fallen away. What may or may not be a banking practice may now appear in the securities industry. The way we think about regulation and the industry has changed over time, which largely reflects innovation in the industry itself. Crypto highlights a fundamental flaw with the American approach to financial regulation, which is that we don’t have a central regulator.
There must be a focus on combating fraud. There must be a focus on protecting consumers. The real debate is who should do this. I would suggest that it is the SEC.
Why is the SEC uniquely positioned to oversee this?
The SEC is a consumer financial regulator. Their basic goal is to protect consumers. They were set up with the aim of protecting retail investors. The regulations that the SEC has in place for broker-dealers, exchanges and people who take care of these assets were meant to protect investors from the things you see with FTX: people losing money and the scams that are out there right now. The SEC already has a toolkit, and it makes sense for the SEC to pick this up.
Is crypto more like a currency than a security? It seems that is how it is being used or advertised. Why not categorize it that way?
If I took crypto and bought a sandwich with it, it would look a lot more like a currency. It’s something that really doesn’t need the protection of the securities laws. To the extent that it is used as a means of promoting investment, it begins to look much more like a security.
Read the full story on the eCornell Impact blog.
Torie Anderson is a writer for eCornell.
