The U.S. Securities and Exchange Commission (SEC) Chair, Gary Gensler, said Congress needs new regulatory frameworks for crypto exchanges. At present, no single agency is directly responsible for them, leading to an incoherent regulatory approach.
A possible solution lies in the formation of a new agency to oversee crypto exchanges directly. Alternatively, an existing agency would see an expanded role. Either way, regulatory clarity remains a central sticking point for the cryptocurrency industry. Can we now expect to move forward on the issue?
The U.S. Crypto Industry May Finally Get Regulatory Clarity
Newly appointed Gensler addressed the House Financial Services Committee yesterday. Among the many topics discussed was the fact that no single agency is in charge of crypto exchanges in the U.S.
The statement was Gensler’s first regarding his approach to cryptocurrency regulation. He pointed out that crypto businesses must deal with multiple regulators. The issue is compounded by a mishmash of rules at both the state and federal levels.
By putting in place a regulatory framework for exchanges, Gensler hopes more direct oversight will lead to a vibrant crypto marketplace that’s safer for investors.
“That could instill greater confidence. Right now there’s not a market regulator around these crypto exchanges. And thus there’s really not protection against fraud or manipulation.”
Chief Legal Officer at Coinbase, Paul Grewal, said he welcomes the opportunity to discuss how to get crypto regulation right. Adding, his firm is willing to share its knowledge on what works and what doesn’t.
Earlier this year, in responding to SEC allegations of selling unregistered securities, Ripple CEO Brad Garlinghouse said the regulatory landscape is a mess. Going further, he explained that Ripple deals with eight different agencies, and each has its own take on cryptocurrency.
“With 8 different govt agencies, each with their own (and sometimes opposing) views of crypto, U.S. market participants are facing conflicting policies and no surprise, some act conservatively.“
Robinhood Under Fire
Also on the agenda with the House Financial Services Committee was Robinhood. Lawmakers raised concerns over the possible conflict of interest that comes with zero commission trading apps.
Under its “payments for order flow” business model, the firm receives compensation and other benefits for directing orders to different parties for trade execution, with Citadel Securities executing near half of Robinhood trades.
Julian Emanuel, the Chief Equity and Derivatives Strategist at BTIG, said zero commission at the front end increases the likelihood of users trading.
“When you can engage in an activity that used to cost you something and no longer seemingly costs you anything, the inclination is particularly if you’re making money doing it, you’re likely to do it more often. It’s a perfect example of the law of unintended consequences.”
Similarly, accusations of “gameifying” trading have the same effect. Regulators widely criticized the use of confetti and other techniques to entice customers into trading.
In December last year, Robinhood agreed to settle with the SEC for $65 million over charges it failed to disclose its “payments for order flow” model adequately.
