Economic Studies at Brookings yesterday dropped a call for better regulation of the cryptocurrency and digital assets industries by none other than Tim Massad, the former chairman of the CFTC. As befits the former head of an agency that embraced principles-based regulation, Massad’s paper is long on analysis of the industries and the regulatory issues that seem to afflict business conditions.
Massad’s most provocative recommendation is that Congress should give the SEC regulatory authority over the cash markets for non-security crypto-assets, as well as the associated trading platforms, wallets and advisors. Although he acknowledges that the CFTC would be competent to regulate crypto assets, Massad nods to the SEC mostly because of its experience with retail investors but also because it already has jurisdiction over tokens and crypto-assets that are securities. The expansion of the work load could be funded by industry levies as is done for the securities industry today.
Massad also calls on the crypto-asset industry to take an active role in designing the legislation and regulation.
The following are all of Massad’s recommendations:
- Congress should pass legislation providing the SEC (or alternatively the CFTC) with the authority to regulate the offering, distribution and trading of cryptoassets, including regulation of trading platforms, custodians (or wallets), brokers and advisors.
- Congress should increase the resources of both the SEC and the CFTC to implement new as well as existing authorities pertaining to regulation of cryptoassets.
- The legislation should set forth core principles, rather than specifics for regulations, as Congress has done for the futures industry and crowdfunding. [named core principles deleted] Congress should direct the agency to issue regulations to implement the core principles and on such other matters as the agency believes are necessary to promote transparency, integrity, customer protection and financial stability.
- With respect to offshore platforms that solicit or provide access to U.S. investors, Congress should give the relevant agencies the authority to determine whether such platforms should be required to comply with U.S. standards, or demonstrate compliance with comparable standards, or disclose prominently that they do not meet such standards.
- Congress should direct the relevant agencies to consider whether there may be different ways of meeting core principles for centralized versus decentralized platforms and systems and, where practicable, have regulations that do not favor one approach over another.
- As a first step toward the development of legislation, the Financial Stability Oversight Council or the Treasury Department should issue a report recommending Congressional action to strengthen and clarify regulation of the sector.
- The industry should continue to develop its own self-regulatory standards. The legislation should give the lead agency the authority to allocate responsibility for certain enforcement or compliance matters to a self-regulatory entity.