Some regulatory clarity could be ‘hugely damaging’ to crypto, former CFPB director says

Kathy Kraninger, former director of the United States Consumer Financial Protection Bureau, or CFPB, said that while many in crypto have complained about the lack of regulatory clarity in the country, the legal gray area has given the industry opportunities.

Speaking to Cointelegraph, Kraninger said that Congressional actions to divide the roles of various regulatory agencies — including the Securities and Exchange Commission, or SEC, and the Commodity Futures Trading Commission, or CFTC — would be the “best outcome” in her view. However, she added that it was unlikely that any single department would have total control over the range of investment products related to the digital asset space.

“It’s not going to be in the SEC’s interest or its nature — or at least the chairman’s current attitude — to come out and say ‘oh yeah, let me give you all the criteria of what a security is that’s going to answer everybody’s question ,'” the former CFPB director said. “It’s just not going to happen, and I can see why the industry in some ways says it wants it, but if it got it, it could also be hugely damaging. It could be a huge abuse, it could be far-reaching. »

The SEC, CFTC, CFPB, Financial Crimes Enforcement Network and Federal Trade Commission handle various aspects of regulation and enforcement of digital assets in the United States, resulting in a patchwork approach companies must navigate to operate legally. Some US lawmakers have proposed that certain agencies work together to establish regulatory clarity, while others have introduced legislation aimed at giving one department more authority than others.

Another option for regulatory clarity, according to Kraninger, may lie in case law from enforcement actions. In July, the SEC labeled nine cryptocurrencies as securities in an insider trading case against former Coinbase product manager Ishan Wahi, his brother and an associate. Lawyers representing a former OpenSea product manager accused of insider trading argued in a Friday filing that authorities were using the case in an attempt to set a legal precedent that non-fungible tokens were securities.

Kraninger added that applications in the decentralized finance space could be the next big testing ground among regulators:

“DeFi just takes it to a whole other level in terms of the agencies that can be involved, the use cases, the lack of intermediaries, if you’re really centralized […] Just the decentralized ecosystem and the use cases within it – that’s something regulators around the world are really going to struggle with.”

Related: US Senator Hagerty to CFPB Director: Don’t stifle crypto innovation

Kraninger has worked as vice president of regulatory affairs at market monitoring firm Solidus Labs since July 2021 following her departure from the CFPB. On August 16, former CFTC Commissioner Dawn Stump announced that she would also be joining the company as a strategic advisor.