Amid the news this week that a new cryptocurrency would debut — that would be Facebook’s Libra, of course — might the regulatory landscape be shifting enough so that the institutionalization of crypto, for trading and perhaps for commerce, hits a few snags?
The Wall Street Journal reported Wednesday (June 19) that several dozen startup firms are looking to leave the unregulated world of cryptocurrency dealing and join the ranks of licensed brokerages.
But first they must wait for regulators to OK the changes, where these nascent companies bring electronic trading platforms to market. The Blockchain Association has said that several applications are in the works and have been sent to regulators, but no applications have been approved in months. That stall comes in the wake of a boost in regulatory actions levied against the sector since the beginning of last year.
Then, as now — and perhaps in the future — regulators have been debating whether investments tied to digital coins such as bitcoin may carry outsized risk. The Securities and Exchange Commission (SEC) and FINRA (short for the Financial Industry Regulatory Authority) are mulling how exchanges and broker-dealers should function in that new investment world.
“Membership applications from firms proposing to engage in digital-asset businesses present new, complex issues and we are in the process of working through them,” FINRA spokesman Ray Pellecchia told the news outlet.
Brokerage licenses are a foundation for establishing trading platforms, and at least some observers say that the regulators’ dragging their heels has kept blockchain and bitcoin from advancing and changing financial services and products. There are no guidelines in place yet from the SEC, not officially, though as the report noted, there are indeed guidelines in draft form. At least some firms have followed the commentary by SEC Chairman Jay Clayton, who said years ago that crypto firms cannot raise money without following extant rules. That commentary spurred several companies to rebrand digital tokens as securities.
At the same time, these firms must address concerns about security of their offerings, as hacking abounds. In only one recent example, news reports said North Korean hackers had conducted attacks on crypto exchanges to steal hundreds of millions of dollars and blunt the impact of economic sanctions. The security concerns swirl around how to keep passwords, also known as private keys, safe.