The road to regulating cryptocurrencies is long and winding. But some common issues arise from the din of voices calling for frameworks and guard rails for the industry as a whole and for holdings like Bitcoin and stablecoins.
There is the President’s Working Group on Financial Markets, which brings together a wide range of regulators, including the joint heads of the Treasury Department, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).
And earlier this month, the working group looked at the need to regulate at least a subset of crypto: in this case, stablecoins.
As PYMNTS recently reported, regulators stated in their report that “Stablecoins, if well designed and properly regulated, could support faster, more efficient and more inclusive payment options. In addition, the transition to broader use of stablecoins as a means of payment could be quick due to network effects or relationships between stablecoins and existing user bases or platforms. “
See also: President’s Working Group: Stablecoin Risks Warrant Legislation
However, those same regulators also noted the need for greater oversight and action from Congress – and even if efforts continue here at home, the Treasury Department will push for international standards to combat money laundering and financial terrorism.
The risks ahead
The risks are numerous, according to the group, as stablecoins can bypass traditional mechanisms of market integrity and investor protection – and bank runs could occur if confidence in the coins themselves and the assets that support those coins is lost.
At the high level and below the recommendations of the paper, stablecoin issuers should be federally regulated depositaries, required to hold sufficient reserves to meet redemption requests. The Financial Stability Oversight Council has at least some authority to designate stablecoins as systemic risk (and thus curb stablecoin issuance and activity if necessary).
The call for a far-reaching, global framework is being taken up by a number of players in the industry. Only in the past few days have we seen proposals from exchanges like Binance – while Ripple, a crypto issuer, has its own ideas about what a regulatory landscape might look like. Binance has issued 10 “basic rights” within crypto, which point the way to its own version and vision of a framework.
Also Read: Binance Intros Rights For Crypto Users, Urgs Global Guidance
According to a company blog post, the 10 rights indicate that “crypto regulation is inevitable. Users have the right to share their voice on how the industry should evolve with their blockchain platform of their choice. ”Additionally, the company said,“ Binance is working with regulators and policymakers to support a global framework that protects users without restricting growth and innovation. “
The 10 rights do not offer strict guidelines, but rather speak something general – for example, that “responsible crypto platforms have the duty to protect users from evil actors and to implement Know Your Customer (KYC) processes in order to prevent financial crime”. Elsewhere, the company stated that “crypto users have the right to access exchanges that keep their funds safe and with comprehensive deposit protection.”
Ripple, which is in the midst of a lawsuit with the SEC over the very existential nature of crypto – especially whether it is a security or a currency – is planning a crypto trading platform for financial institutions (FIs) and has commented on regulations. But Ripple’s approach seems to be different from the aforementioned demands to create new standards and global frameworks.
The company said in its own document this week that existing frameworks – can protect stakeholders and encourage innovation. In that context, the company indicated that the company relegated the two proposals, which were designed to work within the existing format while adapting it to enable crypto and blockchain innovations.
Further details: Ripple plans crypto trading platform for FIs in 2022
“The Securities Clarity Act (SCA) proposes a new term – ‘contract assets’ – clarifying that such assets should be viewed separately and separately from any securities offerings in which they may have been involved.” Regardless, “the digital is aiming Commodity Exchange Act (DCEA), which supplements the SCA, provides a federal definition of ‘digital commodity exchanges’ and gives the CFTC the power to register and supervise them, similar to the requirements for commodity derivatives ”. Markets, “says the document.
The digital currency exchange Coinbase also published its own ideas for regulation last month. The company differs from the other recommendations in that it claims that a separate, single regulator (which in turn was created by Congress) should oversee the burgeoning market.
See also: Coinbase calls on Congress to create a crypto regulator
There is no clear path ahead of us for crypto regulation, although the certainty is that stricter oversight will follow.
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