The news that US Congressman Warren Davidson intends to limit the US Securities and Exchange Commission’s (SEC) authority over the cryptospace has spread across the industry. Representative Davidson has stated that his bill, called the Cryptocurrency Act of 2020, would “clarify which federal agencies regulate which digital assets.” The bill had been submitted to Congress in early December, but has been gaining traction more recently. With the SEC becoming increasingly vocal on its stance against the cryptocurrency market, the bill aims to reign in its powers in order to protect investors.
- 1. US Congressman Takes Steps to Limit SEC Power over Crypto
- 2. Growing Discomfort Among Crypto Exchanges Over SEC Regulations
- 3. Proposed Legislation Aims to Set Reasonable Rules in the Crypto Space
- 4. Potential Impact of Regulatory Change on Digital Currency Exchanges
1. US Congressman Takes Steps to Limit SEC Power over Crypto
US Congressman Tom Emmer, who represents Minnesota’s 6th district, has introduced legislation aimed at limiting the power of the Securities and Exchange Commission (SEC) over the cryptocurrency industry. This move underscores the effort being made by policymakers to better gear the US for cryptocurrency regulation.
The legislation, known as the “Crypto-Currency Act of 2020”, covers four major areas:
- State liabilities: It provides clarity on which federal and state agencies are responsible for monitoring and regulating cryptocurrencies.
- Commodities VS. Securities: Cryptocurrencies would be treated as commodities, similar to other valuable goods like gold, silver, etc.
- Non-SEC ICOs: Cryptocurrency Initial Coin Offerings (ICOs) not regulated by the SEC wouldn’t be subject to federal securities laws.
- Crypto property rights: It provides crytptocurrency investors with legal recourse in the event of a dispute.
The introduction of this bill comes at a time when other countries, including China and Singapore, are taking steps to create a more favorable regulatory framework for the cryptocurrency industry. If Emmer’s bill is passed, it could make the US the next major hub for cryptocurrency-related business.
2. Growing Discomfort Among Crypto Exchanges Over SEC Regulations
Increasing Fear of Regulations
Cryptocurrency exchanges are increasingly becoming the center of attention of the highly-regulatory U.S. Securities and Exchange Commission (SEC). Attaching compliance clauses to exchange transactions in an attempt to reduce fraud and manipulation in the volatile crypto-market has become a norm, and the exchanges are gradually getting more uncomfortable with the prospect of being subjected to constant scrutiny.
The development of an SRO (Self-Regulatory Organization) to oversee digital assets is being looked into by the SEC. This could result in exchanges being barred from extending their services without proper registration, hence causing a flustered shuffling of the industry.
Exchanges are struggling to determine the best balance between compliance and innovation, as the uncertainty surrounding their future lingers on. The fear of potentially being subjected to the same degree of regulation as stocks is amplified by the fact that some of the commonly¬ used terms – such as “token” and “ICO” – are identical to those used in registered securities but not falling under their purview.
- U.S. Securities and Exchange Commission imposes compliance clauses on exchanges
- Exchanges fear full-fledged regulation like stocks
- Uncertainty around the industry remains
3. Proposed Legislation Aims to Set Reasonable Rules in the Crypto Space
The proposed legislation looks to create a regulatory framework for digital asset markets, exchanges, and service providers. With this, the aim is to ensure fair investor protection and prevent market manipulation.
One of the key elements to be addressed in the legislation is an improved definition for ‘digital asset’. With digital assets currently falling under some state laws, the legislation would create legal definitions to better differentiate between digital assets. This would also help to avoid any unnecessary overlap between rules that may be in place across multiple states.
Additionally, the proposed legislation is also looking to introduce a set of ‘reasonable’ rules for the crypto space. These may include:
- Extending AML and KYC requirements to digital asset service providers and exchanges.
- Placing restrictions on who is authorized to conduct transactions.
- Introducing a licensing system for digital asset operators.
It’s hoped that these measures, in addition to the improved definitions, would serve to not only increase the level of investor protection but also enhance the reputation of digital assets within the mainstream markets.
4. Potential Impact of Regulatory Change on Digital Currency Exchanges
The rapidly changing nature of the digital currency marketplace has led many to worry about the potential impacts that regulatory changes could have on digital currency exchanges. These changes could have a myriad of impacts, both positive and negative, that should not be overlooked.
Costs and Red Tape
Regulatory changes could put additional costs and red tape on digital currency exchange operators. These changes could force them to take on additional compliance costs and hire additional personnel to handle compliance vetting procedures. This could make operating the exchanges more expensive, which could be passed on to customers.
Increased Security
Despite the potential drawbacks, increased regulation may also have a positive impact on digital currency exchanges by strengthening security. Regulations could force exchanges to increase their risk management procedures, which could reduce incidents like money laundering and hacking. Furthermore, establishing safety protocols across the digital currency space could attract more users and investors into the digital currency sector.
Increased Transparency and Adoption
Regulatory compliance protocols could also force digital currency exchange operators to become more transparent, which could bring much needed trust and credibility to the sector. This could play a significant role in increasing the adoption of digital currencies, by helping to establish trust in the digital currency sector.
- Increased costs and red tape.
- Increased security.
- Increased transparency and adoption.
Regulatory changes could be the catalyst for digital currency exchanges to make various improvements that could ultimately benefit the sector as a whole. Hence, discerning the potential impacts of emerging regulations on digital currency exchanges is essential for understanding the future of the industry.
The upcoming bill may be seen as either a power grab by the US government, or a necessary step to bring crypto assets into the mainstream. Only time will tell whether this bill helps crypto remain independent of the SEC or whether it will move the industry closer to regulation. Only then will the complete effects of such legislation be revealed.