What to Expect When CFTC, SEC Chiefs Talk Crypto With Congress
Congress is set to hold what may be the most consequential hearing in years on the subject of cryptocurrency, with the heads of the two main U.S. financial market regulators in the hot seat.
J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, and Jay Clayton, his counterpart at the Securities and Exchange Commission (SEC), will testify on Capitol Hill tomorrow. And the process of fielding questions from the Senate Banking Committee is likely to yield one or two notable moments given recent developments in the space – including those involving the agencies themselves.
In recent months, the two agencies have, between them, filed lawsuits against alleged scams, launch investigations, overseen the launch of bitcoin futures, issue warnings to investors and, perhaps more broadly, come to terms with a rapidly-evolving environment that has, in the words of their leaders, tested the limits of their reach.
Ahead of the hearing, copies of both Clayton’s and Giancarlo’s testimony have been released. While largely an overview of their respective agencies’ work to date, both leaders suggested that they would support, in some way, new avenues of regulation that could lead to an expansion of oversight by the U.S. government into the cryptocurrency market.
Yet such an undertaking would, in their view, require an act of Congress – as well as close involvement with the relevant agencies.
Clayton commented in his written remarks that he is “open” to working with U.S. lawmakers, in addition to state regulators, on the question of new rules for trading sites.
“As Chairman Giancarlo and I stated recently, we are open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate. We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space.”
Giancarlo’s nudging toward possible changes was slightly more detailed, highlighting what he called “shortcomings” in the system by which each state issues money transmission licenses to businesses.
“As the Senate Banking Committee, the Senate Agriculture Committee and other Congressional policy-makers consider the current state of regulatory oversight of cash or ‘spot’ transactions in virtual currencies and trading platforms, consideration should be given to shortcomings of the current approach of state-by-state money transmitter licensure that leaves gaps in protection for virtual currency traders and investors,” he wrote.
Potential new rules governing cryptocurrency exchanges should, he went on to explain, “be carefully tailored to the risks posed by relevant trading activity and enhancing efforts to prosecute fraud and manipulation.”
“Overall, a rationalized federal framework may be more effective and efficient in ensuring the integrity of the underlying market,” he went on to write.
What kind of event can industry-watchers expect?
The written testimony only offers a piece of what might be raised during the question-and-answer phase of the hearing. Given the significant public interest in the topic – as well as a soundbite-heavy political environment – it’s tough to what could come up.
According to Jerry Brito, executive director of the non-profit advocacy group Coin Center, two of the prevailing news narratives of the past year – initial coin offerings (ICOs) and derivatives products like futures – are likely to dominate the discussion.
“There’s been a frenzy of ICOs,” Brito noted, including “a lot of crazy scams and weird stuff” alongside serious projects and significant money invested. “This is what sparked the hearing,” he added.
Brito said that Coin Center has met individually with staff of more than half a dozen committee members and participated in a group briefing Friday for staff of all committee members. The room was packed, he said.
Another issue that may come up in the hearing is the regulatory treatment of token sales, particularly when the token being sold to raise funds for a project is supposed to be useful on the network that will eventually be built.
Lewis Cohen, a partner at the law firm of Hogan Lovells in New York, said he agreed with Clayton’s comment in the prepared remarks that ICOs should be regulated as securities when they emphasize the potential for investor profits (for example, from selling tokens in the secondary market). Just because the tokens may have utility does not exempt the offering from investor protections.
But likewise, he said, the regulatory community needs to be careful not to assume that just because a token is the object of an investment scheme that it is necessarily a security itself.
It would “make little sense,” Cohen said, if once a functional network like Filecoin is fully up and running its users had to go to a broker-dealer to buy tokens to store data in a decentralized manner on the platform.
Nikhilesh De and Marc Hochstein contributed reporting.
Image Credit: Shutterstock.com
Written by CoinDesk.com
Korean Exchange Halts Trading Over KYC Concerns
South Korean cryptocurrency exchange Coinpia has announced it will suspend both trading and deposits after it was unable to implement a customer identification system in line with a recently enacted government mandate.
According to an announcement released Tuesday through its homepage, the exchange had suspended Korean won deposits on Jan. 30 in an effort to comply with the new regulation, enforced by South Korea’s watchdog Finance Service Commission.
As reported by CoinDesk, the Financial Services Commission (FSC) announced on Jan. 23 that, starting from February, cryptocurrency investors in South Korea would have to use their real names and bank accounts to continue trading.
However, Coinpia reports it continues to struggle with the integration of identity verification into its existing exchange system. As such, exchange executives said the company has to halt trading to comply with anti-money laundry and know-your-customer rules.
The news comes just a week after the new regulation in South Korea came into effect, and as such, it perhaps marks the first trading suspension among Korean exchanges after the country required them to upgrade their trading systems.
Previously, Coinpia was one of eight cryptocurrency exchanges in South Korea that received a fine of $131,000 by the Korea Communications Commission due to allegedly insufficient user privacy protection in its system.
South Korea map via Shutterstock
Written by CoinDesk.com
Report: China Cutting Access to Overseas Crypto Trading
The Chinese government is reportedly moving to block domestic access to overseas websites that offer services for cryptocurrency trading and ICO investments.
A report from Financial News, a website tied to the People’s Bank of China (the country’s central bank), indicates that authorities there are stepping up a crackdown that began roughly a year ago.
“To prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs,” the website reported, according to a translation published by the South China Morning Post.
The move comes months after China formally banned investments in initial coin offerings (ICOs), deeming the blockchain use case to constitute a form of illegal financing. Authorities there also shuttered online websites for crypto-trading, with the “Big Three” exchanges closing this past fall.
The new reports show that China is now targeting overseas websites catering to local users. According to the translation from SCMP, the actions are begin taken because “after the closure of the domestic virtual currency exchanges, many people turned to overseas platforms to continue participating in virtual currency transactions.”
A separate Feb. 4 report from Chinese-language news service Xinhua and published on bitcoin social media site 8btc, cites a statement from the People’s Bank of China regarding the overseas website ban. Per the statement, authorities are moving to “ban all crypto-related commercial business including banning and blocking both domestic and offshore cryptocurrency trading platform websites.”
“Once found, will be immediately shut down. The future depends on its development and does not rule out the possibility of unveiling further regulatory measures,” the report further adds.
PBoC image via Shutterstock
Written by CoinDesk.com
Russia Drafts Bill to Create Offshore Companies to Trade Cryptocurrencies
Crypto Trading Offshore
“The Ministry of Finance proposed to create offshore companies in Russia for trading with cryptocurrency,” Ria Novosti reported. Deputy Finance Minister Alexei Moiseev told journalists that his ministry is “considering the possibility of implementing organized trades of cryptocurrencies on the Russky and Oktyabrsky islands,” according to Tass.
Oktyabrsky is a river island in the European Kaliningrad Oblast. Russky Island is part of the city of Vladivostok, off the Pacific coast near Japan. In November of last year, a Hong Kong company announced that it planned to set up a crypto mining farm on Russky Island.
Referring to a recently published bill entitled “On Digital Financial Assets,” Moiseev said the two islands are being considered in the bill. He elaborated that the opportunity to trade cryptocurrencies on Russky Island was “discussed with the Ministry of the Far East,” Ria Novosti described.
Moiseev believes that “the exchange of cryptocurrency for rubles and other assets can be resolved in separate territories,” Tass noted and quoted him explaining:
Maybe it will not be on the common territory, but within the framework of special territories like Vladivostok Free Port, [where] there is already an offshore element, and now a bill is being prepared for the Russky and Oktyabrsky Islands, where there will be an even more special regime.
The Ministry of Finance and the Bank of Russia still have not reached an agreement on the possibility of exchanging cryptocurrency for rubles and other assets.
Russian Presidential Adviser on Internet Development, Herman Klimenko, has “criticized the idea of the Ministry of Finance to create offshore companies in Russia to trade cryptocurrencies,” Tass also reported. According to him, from a technical point of view, there is no difference where the trading of cryptocurrencies is carried out.
Klimenko elaborated, “This is about the same as legalizing mining in a certain territory. You cannot prove that it is conducted on certain sites or on certain equipment.” In addition, he “believes that the organization of offshore companies has no economic basis and will not lead to the creation of new jobs.” He was further quoted by the publication:
When we do offshore fishing in Vladivostok, it’s understandable, there are fish there. If on the Russian island there were the best quality of Internet access and the fastest connection to the whole world, we would say that, for trading in cryptocurrency, this is the most important factor. Then it would be understandable, and so [as it is] there is no point.
Written by Bitcoin.com