The chair of the Securities and Exchange Commission (SEC) Gary Gensler is talking to other financial agencies, including the Commodity and Futures Trading Commission (CFTC), to work together on crypto oversight to prevent cryptocurrency operators from falling through the cracks of the US’s fragmented regulatory system.
Gensler told the Financial Times that he is working on a “memorandum of understanding” with the CFTC to make sure that crypto asset providers, and in particular platforms listing tokens, receive the right supervision and consumers are adequately protected.
The two agencies are in the middle of a legislative shake up that may shed more light about who will have to supervise digital assets. Traditionally, the SEC and the CFTC have focused on different aspects of financial markets, with the SEC overseeing securities and the CFTC derivates — and they rarely work together, although this wouldn’t be the first time. Cryptocurrencies are blurring these lines, and this may encourage regulators to work together. Interestingly, SEC and CFTC’s Commissioners Hester Peirce and Caroline Pham recently wrote an op-ed piece proposing a closer collaboration between the two regulatory agencies.
Read more: SEC, CFTC’s Crypto Aspirations To Be Tested by Courts, Lawmakers
If a token represents a commodity and it is listed on a platform overseen by the SEC, the securities regulator would “send that information over to the CFTC,” Gensler said.
“I’m talking about one rule book on the exchange that protects all trading regardless of the pair — [be it] a security token versus security token, security token versus commodity token, commodity token versus commodity token” to protect investors against fraud, front-running, manipulation as well as providing transparency over order books, Gensler said.
Gensler’s proposal comes just a few days after lawmakers in Capitol Hill, Senators Cynthia Lummis and Kirsten Gillibrand, introduced new legislation that seeks to clarify who will be responsible for crypto supervision. If approved, the new bill will extend the CFTC’s powers based on the assumption that most digital assets resemble commodities rather than securities.
Both agencies have shown in the past their willingness to take on additional oversight of crypto assets. Rostin Behnam, chair of the CFTC, has defended that “hundreds if not thousands” of tokens qualify as commodities, and regulating cash crypto markets “could be a natural fit for us,” he said. Behnam also refers to the newly proposed crypto bill saying that the Gillibrand and Lummis bill did “a very good job” in distinguishing between securities and commodities tokens.
This is not the first time that Gensler suggests that both agencies should work together in crypto oversight, but in the previous times he was, arguably, in the leading position in the race for regulatory oversight — whereas now, this position may be questioned after the proposed crypto bill was unveiled.
Read more: Gensler Says SEC Plans to Regulate Crypto Exchanges, Sharing Power With CFTC
Gensler has been very caution on his comments about the proposed legislation and what it would mean for the agency or investors, but in a recent event, he warned about the negative impact of not providing the right protections.
“We don’t want” stock exchanges or mutual funds, “inadvertently by a stroke of a pen, say ‘You know what? I want to be . . . outside of this regime’ that I think has been quite a benefit to investors and economic growth over the last 90 years.”
Read more: SEC Rulemaking Priorities for 2022 Leave Crypto Out
Gensler’s proposal to work closely with the CFTC may also help to regulate an area in need of clear rules that the SEC may not be in a rush to cover. The agency released on Wednesday, June 22, its list of rulemaking priorities for 2022, and it was noticeable the absence of any proposal to regulate crypto assets.
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