The US regulatory authorities are increasing the pressure on crypto-backed trading platforms. The US Securities Exchange Commission (SEC) wants cryptocurrency platforms to register with it.
The contention from SEC is that cryptocurrency platforms are offering security options relating to crypto assets, which they are not allowed to do without being registered with them.
The SEC chairman Gary Gensler recently spoke in a conference, asking for additional authority from the US Congress to force platforms to comply with its rules.
Gesler highlighted how cryptocurrencies were often only decentralised in name, offering products like various securities. These unregistered securities could lead to many millions losing their wealth in price fluctuations that often happen as a result of market manipulation.
"This asset class is rife with fraud, scams and abuse in certain applications," Gensler said. "We need additional Congressional authorities to prevent transactions, products and platforms from falling between regulatory cracks." "If we don't address these issues, I worry a lot of people will be hurt," he added.
Testifying in front of the Senate Banking Committee on Tuesday, Gensler reiterated some of the same points asking for more regulation on crypto platforms. While many platforms claim that their services and products cannot be claimed as securities "very many are," said Gensler.
Gensler also highlighted the example of Coinbase, stating that the exchange "may have dozens of tokens that are securities" even though “they
In spite of his criticism of the crypto sector, Gensler did clarify that was not against the new technology. "I fear that if the field, which I studied for 3.5 years at MIT, stays outside the public policy framework for Anti-Money Laundering (AML), investors protection, and tax fraud … it is not going to persist," he said.
The crypto response
Coinbase, and other crypto platforms maintain that their products cannot be classified as securities and thus should not need to register with the SEC. In many cases, platforms look to serve lending and products in order to make better margins. But platforms are also willing to work with the SEC. The main issue remains the contention between regulators and service providers over the ambit of definitions of products being offered by crypto platforms.
Coinbase recently revealed that the SEC was threatening to sue the company if it launched its now lending product called Lend. The company, which has famously been at the forefront of working together with regulators, complained that the SEC did not clarify how or why it considered its new product a security asset, even as Coinbase itself found that the new product didn’t satisfy the Howey test. The Howey test was established by the US Supreme Court to determine whether something was financial security or not.
As regulatory pressure increases on cryptocurrency platforms in the US, nations are slowly opening up to further adoption as seen in the case of El Salvador and Ukraine.
(Edited by : Jomy Jos Pullokaran)
First Published: Sept 15, 2021 8:21 PM IST
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