Most crypto companies have complained that there are a large number of regulators around the world, and especially in the United States, and have protested against the growth and innovation of these overlapping and even reverse control systems. The “Alphabet Soup” of the U.S. regulatory agencies – SEC, CFTC, DOJ, FDIC, FTC and IRS, to name a few – is just the beginning.
At the state level, 50 attorney generals oppose them, not to mention the various state agencies and regulators that enact countless laws approved by the state legislature and enforced by the courts. Digital currencies have no boundaries and regulators can increase their regulatory reach if they influence the market, consumers and organizations in their jurisdiction.
Donna Parasi is the global head of financial services and fintech at the legal firm Shearman & Sterling. Sandra Rowe is a former derivatives banker and market infrastructure executive and CEO of the Global Blockchain Business Council, the next multi-trillion dollar non-profit building industry through a Swiss industry partnership, education and Okaz.
Some crypto startups and fintech leaders have suggested a new regulatory body that would allow regulators to overcome this myriad controls as a way to facilitate regulatory compliance and reduce overlap between competing firms. The Financial Conduct Authority (FCA) in the United Kingdom is often cited as an example of a central superseding agency that recognizes and promotes innovation through its policies, and many even support a parallel agency in the United States, with some Fintech leaders even Threatened to leave the entire United States, And transfer to a friendly regulatory system in the UK or elsewhere.
No question, navigating the matrix of federal and state regulations is painful and costly even for young crypto startups and even mature fintechs. But despite the seemingly chaotic and burdensome regulatory structure, the U.S. system provides confidence to both investors and consumers.
This method of controlling digital assets allows innovation to develop by preventing fraud, unhealthy speculation and asset bubbles. In order to innovate and stay competitive with other international markets, U.S. regulators need to reduce “gray areas” so that more fintech and entrepreneurs can clearly navigate the rules of the road. The problem is not so much regulation in the United States but this lack of clarity and overlapping rules.
Many U.S. regulatory bodies are the beasts of different laws that were passed in response to various national crises – the Civil War, securities and financial institutions were inseparable from developing a national banking system to finance a regulatory (OCC) Office Exchange Commission (SEC) and federal The Deposit Insurance Commission (FDIC) was established in the wake of the Great Depression, and the Financial Stability Monitoring Council was part of the reform under the Dodd-Frank Act. Inherited formulas that are a complex regulatory landscape of many regulatory and statutory orders. For example, the SEC and the Bureau of Consumer Financial Protection (CFPB) are primarily responsible for investor and consumer protection, with U.S. federal banking agencies focusing on the security and stability of banking institutions and the stability of the financial system itself.
Despite the seemingly chaotic and burdensome regulatory structure, the U.S. system provides confidence to both investors and consumers.
Having a monotony of a controller can be a simple and one-stop shop in the short term, but if that controller makes a mistake, that model can also create significant challenges and risks. While this may be more complicated, the U.S. regulatory system increases long-term investor and market confidence.
Given the wide latitudes of regulators, especially in the control of fintech and financial innovation, the result is rules that can be flexible and resilient with the evolution of technology. The existence of several federal financial regulators means that no single regulator will set the standard for “all crypto”. The diversity of state-level controls can also help to determine which regulatory systems work and which do not. In some ways, regulatory bodies can compete with each other to strike the right balance between innovation and safety and stability. At the state level, New York and Wyoming are examples of states that have led the way in controlling digital resources (albeit in different ways). Time will tell which method is more effective in the long run.
This tension between regulators is sometimes frustrating. This means, for example, that the United States has lagged behind in the development of comprehensive, “regulatory sandboxes” that other jurisdictions, including many slimmer regulatory systems, have promoted. But in the end, this unique American regulatory landscape could result in a more stable market that matures in a more stable fashion. Regulators in the United States are proud that they have built a highly stable financial system that is enviable to the world. Innovation, however, advises them not to lag behind on the global stage.
Regulatory complexity is not new. While this may make life more complicated for some crypto businesses, it has nothing magical about the way financial regulators in the United States generally move towards control with digital assets.
For any new product or service, regulators still need to ask and answer these questions: what is the activity, what touches it, how can this activity harm the financial system or harm users, for example, how the market and consumers benefit Could there be access, lower fees and more transparency? Although these questions are clear, the answers are complex and often intersected.
But why not remove all this regulatory overlap and create a single agency to oversee crypto and digital resources at least at the federal level?
First and foremost, it will pass a law in Congress. Given the low probability for a bipartisan agreement on new legislation in divided Washington, the responsibility for their power and resilient regulation in creative ways rests with regulators. Coordination and communication, however, is original and very achievable.
To this end, a council should be formed to share knowledge and experience and avoid redundancy and to increase communication between all participants in the regulatory body and the system. At least the Council of the President’s Executive in the financial markets can be modeled to increase the integrity, efficiency, orderliness and competitiveness of the US financial markets while maintaining investor confidence. The work of such a council can be significantly benefited by gaining extensive membership to include not only legislators, but also academia, nonprofit sector and start-up community leaders.
In September, Bank regulators in 49 states have unveiled a plan Facilitate the flow of compliance testing of the Financial Services Business (MSB). This will save time and money for both agencies and regulators and makes it easier for MSBs to do business in the United States This model of a collaborative approach provides a roadmap for more effective and more efficient regulation across the United States. Applying this same collaborative attitude to other areas, such as the KYC process, raising capital and passport licensing, similarly reduces deficits and provides startups with complimentary, non-stop and less expensive ways to do business. A collaborative approach also makes it more likely that the political climate will change, for example, avoiding biased squabbling that disrupts the work of the CFPB.
We don’t need new super-regulators for digital currency. Instead, we need to improve communication and collaboration between regulators, entrepreneurs, investors and banks. Doing so will strengthen oversight, protect consumers, maintain market integrity and, most importantly, lead to a financial system that is better equipped to meet future challenges.
