SEC, CFTC Pledge Mutual Cooperation to Bring Harmony to Financial Regulations

In remarks at a joint regulatory roundtable, SEC chair Paul Atkins said, “For too long, the SEC and CFTC have operated in parallel lanes, too often in conflict with one another, leaving the American public to bear the costs of duplication, delay, and uncertainty. That era is behind us.”

Atkins was joined by fellow SEC commissioners Caroline Crenshaw, Mark Uyeda and Hester Pierce. Acting chair of the CFTC Caroline Pham represented the commodities regulator.

The two agencies have long had an awkward relationship due to their overlapping jurisdictions, often made worse by financial products that straddle regulatory lines. Monday’s pledge is meant to signal a commitment to harmonizing the overall financial regulatory system.

“There’s no question that because we both oversee financial markets, the regulatory lanes for our two agencies aren’t always clear or intuitive,” Pham said in prepared remarks. “At times, this has led to unnecessary friction between the two agencies, and avoidable headaches for the public that depends on us to maintain well-functioning markets. The proven way to resolve these issues is to work together.”

The drive to harmonize the rules has been spurred in large measure by the Trump administration’s determination to position the U.S. as a leader in financial innovation, particularly around crypto.

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“Innovation rarely respects jurisdictional lines and often does not fit neatly into the statutory distinctions between ‘securities’ and ‘commodities’ written decades ago,” the SEC’s Uyeda said. “Yet the regulatory system in which we operate is reliant on clear borders for regulatory efficiency: securities on one side, and futures and commodities on the other.  When innovation crosses this line, one might call it ‘regulatory disruption.’”

Related: CFTC Launches Plan to Enable Use of Tokenized Collateral in Derivatives Markets

Pham pointed to the two agencies work on implementing the recommendations of the President’s Working Group on Digital Asset Markets through the SEC’s Project Crypto and the CFTC’s Crypto Sprint.

“But why stop there?” she added. “Improved harmonization between our agencies promises to accelerate efficiencies, foster innovation, remove jurisdictional ambiguities, and enhance market access and the freedom to choose for customers and investors.”

For all the talk of cooperation, Atkins stressed the harmonization effort is not a precursor to merging the two agencies. “Let me be clear: our focus is on harmonization, not on a merger of the SEC and CFTC, which would be up to Congress and the President,” he said. “Fanciful talk of reorganizing the government risks distracting us from the monumental opportunity we have in front of us. What matters is building a framework where our agencies coordinate seamlessly, reduce duplicative regulation, and give markets the clarity they deserve.”

Not everyone in the target audience for Monday’s roundtable was convinced by the pledge of cooperation, however.

“Collaboration between market regulators is an excellent sound bite for crypto, but requires real work and likely the will of Congress to remove statutory overlaps,” Alex Urbelis, general counsel and chief information security officer at Ethereum Name Service told Decrypt. “The balance of investor protection and promoting innovation isn’t easy, and will always be a game of push and pull despite the best regulatory intentions.”

Still, Atkins insisted the pledge to cooperate is more than soundbite. “To achieve this ambitious vision, our two agencies must work in lockstep to transform dual regulation from a source of confusion into a source of strength,” he said. “Together, we can offer the best of both worlds: the investor protections that have defined U.S. markets, combined with the innovation-friendly approach that will keep us at the frontier of financial technology throughout the 21st century.”