Former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad said current gaps in crypto regulation can be filled if the Securities and Exchange Commission (SEC) and the CFTC come together to form a self-regulatory organization (SRO).
Massad, now a research fellow at Harvard University’s School of Government, told CoinDesk TV on Monday that as it stands now, “neither agency has the power” to regulate cryptocurrency.
"There is the gap. There's a gap with respect to regulation of what I would call the cash market for crypto assets, which are not securities," he said.
The SEC oversees the securities markets including stocks and bonds while the CFTC’s purview is in commodities futures such as agriculture and metals. The CFTC has taken a role in crypto because exchanges such as the CME have active futures markets in bitcoin (BTC) and ether (ETH). Meanwhile, the SEC has taken action against crypto firms because it deems some tokens as securities based on the way they are marketed to the public.
The issue is determining which U.S. agency regulates cash markets – such as buying crypto on exchanges like Coinbase (COIN) or Kraken. Several bills in the U.S. Congress are trying to address this question of how crypto is regulated. But Massad sees the better path in the two agencies joining together in an SRO.
“The SEC and the CFTC create a joint self-regulatory organization that they would oversee and they would pass on its rules,” he said on CoinDesk TV’s “First Mover.”
Self-regulatory agencies are commonplace in traditional finance. For example, the Financial Industry Regulatory Authority (FINRA), overseen by the SEC, creates and enforces rules on brokers and broker-dealers.
Massad, who led the CFTC for nearly three years during the Obama administration, said an SRO for crypto “might be a way to develop standards for this market.” It would also keep regulators from getting “bogged down” on the longstanding debate of whether something is deemed a security or a commodity.
Like other SROs, it would be paid for by the industry being regulated, Massad said. In addition, the proposed committee’s standards would aim to be vastly different from the self-regulatory efforts the crypto industry has attempted, which Massad noted “are much too weak.”
The Senate Agriculture Committee has introduced a bipartisan bill that would give “exclusive jurisdiction” to the CFTC. Essentially, the bill would allow the market regulator to define what is and is not considered a “digital commodity.”
Some in the industry propose having the crypto spot markets regulated by the CFTC. But Massad agrees with those who think the agency would not be fully able to handle it alone.
“The CFTC was underfunded when I was there,” Massad said. “We didn’t have the resources to do things that we really needed to do.”
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