SEC vs CFTC: How The Crypto Market Will Avoid The Judicial System Tensions
RegulationBit News Today2 min read
Early in the emergence of virtual currencies, the SEC and the CFTC established clear stances regarding the boundaries of their respective jurisdictions.
Jurisdictional Scope
In 2015, the CFTC determined that virtual currencies like Bitcoin qualify as "commodities" under the Commodity Exchange Act (CEA), giving the regulator authority over derivatives on virtual currencies. Even so, the CFTC lacks regulatory authority under the CEA over platforms and markets handling cash or spot transactions in virtual currencies, as well as their participants.
In contrast, the SEC, regulating securities transactions and certain participants in securities markets, has been increasingly active in regulating initial coin offerings (ICOs). Chairman Clayton reaffirmed the SEC's definitive position that ICOs are securities offerings that must either be registered with the agency or qualify for a private placement exemption.
The CFTC would need a statutory amendment to extend its authority to virtual currency spot markets.
Regulatory Gaps
Many internet-based cryptocurrency trading platforms are registered as payment services, avoiding direct oversight by the SEC or CFTC. Risks are amplified as regulators may struggle to pursue bad actors or recover funds.
Observing that congressional action to address jurisdictional gaps will likely take considerable time, the commissioner urged the industry to consider creating a self-regulatory group to oversee spot markets and exchanges until lawmakers step in.
Interagency Cooperation
The SEC and CFTC continue to collaborate to maintain market integrity and prosecute misconduct involving digital instruments. One avenue of collaboration is a task force assembled by the Treasury Department consisting of the SEC, CFTC, the Federal Reserve Board, and FinCEN.
Chairmen Clayton and Giancarlo highlighted the importance of regulatory coordination and noted several avenues of cooperation across agencies and counterparts.
Congressional Testimony
At a February 2018 Senate Banking Committee hearing, SEC Chairman Clayton and CFTC Chairman Giancarlo expressed a generally open attitude towards crypto.
Their remarks indicated that while regulators will continue aggressive enforcement against cryptocurrency fraud, manipulation, and ICO violations, they are taking a more measured approach toward adding regulations for spot markets. Chairman Giancarlo pointed out that while the CFTC holds extensive authority over cryptocurrency derivatives, its power over spot transactions is restricted to policing fraud and manipulation.
