Marketing Scoops: Disclosure

The Block

The U.S. Securities and Exchange Commission is weighing its options on how to regulate the trading of digital assets, diverging significantly from the agency’s previous approach. One way could be to provide a temporary fix, acting SEC Chair Mark Uyeda suggested on Friday at a roundtable with several industry participants…….Continue reading…..

By Sarah Wynn

Source: The Block

Critics:

On June 5, 2023, the SEC filed 13 charges against Binance entities and its founder Changpeng Zhao, citing allegations of mishandling customer funds and operating without proper registration. The following day, the SEC charged Coinbase for operating as an unregistered securities exchange, broker, and clearing agency, further signaling its intensified scrutiny of major players in the industry.

A key point of contention between the SEC and the crypto industry lies in defining what constitutes a security. The SEC applies the Howey Test, derived from a 1946 U.S. Supreme Court decision, which defines a security as “an investment of money in a common enterprise with profits to come solely from the efforts of others.”

The agency has classified many crypto assets as securities based on this test, asserting that their value often depends on the efforts of developers or other central parties behind blockchain projects. Critics argue that the test is outdated and ill-suited to the decentralized nature of cryptocurrencies, leaving regulatory definitions unclear and fostering uncertainty. Research by economists found that unpredictable SEC enforcement actions under .

Gensler, classifying cryptocurrencies as securities without clear guidelines, caused prolonged destabilization in crypto markets.Unclear guidelines raise doubts about the agency’s ability to maintain fair and orderly markets. On July 26, 2023, the SEC adopted the Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure rule which was designed to encourage public companies to transparently and effectively manage cybersecurity risk.

The Financial Action Task Force (FATF) has defined cryptocurrency-related services as “virtual asset service providers” (VASPs) and recommended that they be regulated with the same money laundering (AML) and know your customer (KYC) requirements as financial institutions. In May 2020, the Joint Working Group on interVASP Messaging Standards published “IVMS 101”, a universal common language for communication of required originator and beneficiary information between VASPs.

The FATF and financial regulators were informed as the data model was developed. In June 2020, FATF updated its guidance to include the “Travel Rule” for cryptocurrencies, a measure which mandates that VASPs obtain, hold, and exchange information about the originators and beneficiaries of virtual asset transfers. Subsequent standardized protocol specifications recommended using JSON for relaying data between VASPs and identity services.

As of December 2020, the IVMS 101 data model has yet to be finalized and ratified by the three global standard setting bodies that created it. The European Commission published a digital finance strategy in September 2020. This included a draft regulation on Markets in Crypto-Assets (MiCA), which aimed to provide a comprehensive regulatory framework for digital assets in the EU.

On 10 June 2021, the Basel Committee on Banking Supervision proposed that banks that held cryptocurrency assets must set aside capital to cover all potential losses. For instance, if a bank were to hold bitcoin worth $2 billion, it would be required to set aside enough capital to cover the entire $2 billion. This is a more extreme standard than banks are usually held to when it comes to other assets. However, this is a proposal and not a regulation.

The IMF is seeking a coordinated, consistent and comprehensive approach to supervising cryptocurrencies. Tobias Adrian, the IMF’s financial counsellor and head of its monetary and capital markets department said in a January 2022 interview that “Agreeing global regulations is never quick. But if we start now, we can achieve the goal of maintaining financial stability while also enjoying the benefits which the underlying technological innovations bring,”

In May 2024, 15 years after the advent of the first blockchain, bitcoin, the US Congress advanced a bill to the full House of Representatives to provide regulatory clarity for digital assets. The Financial Innovation and Technology for the 21st Century Act, which defines responsibilities between various US agencies.

Notably between the Commodity Futures Trading Commission (CFTC) for decentralized blockchains and the Securities and Exchange Commission (SEC) for blockchains that are functional but not decentralized. Stablecoins are excluded from both CFTC and SEC regulation in this bill, “except for fraud and certain activities by registered firms.”

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