Making progress on decentralized regulation — It’s time to speak about crypto collectively
Decentralization is a frequent theme in crypto conversations. Usually the term refers to the actual or aspirational elimination of intermediaries from finance, social media, or other human enterprises. But “decentralized” is also an apt description of the regulatory landscape for crypto. Crypto has many actual and aspirational regulators. Regulatory decentralization can have benefits, but, if not properly managed, also can aggravate the already confusing lack of regulatory clarity over crypto. Cooperation among regulators is essential to strong, effective, pragmatic crypto regulation.
One of us is a commissioner at the Commodity Futures Trading Commission and the other is a commissioner at the Securities and Exchange Commission. Both agencies over the past several years have exercised regulatory authority over crypto and aspire to increase their regulatory reach over the technology. Statements from the chairs of both agencies reflect an eagerness to regulate crypto assets and markets.
Shared, and potentially competitive, aspiration for regulatory power over the same activity is nothing new for the CFTC and SEC. Because we oversee related parts of the financial markets, the two agencies sometimes bump elbows: the CFTC regulates the commodity derivatives markets, and the SEC regulates the securities markets. But the jurisdictional lanes aren’t always clear. Our two agencies accordingly have had some rough patches in their relationship, but also have found ways to work together. For example, under former SEC Chairman Jay Clayton and former CFTC Chairman Heath Tarbert, in 2020, the two agencies held their first joint open meeting to vote on a shared rule and issue a request for comment. That meeting came after several years of intense cooperation between the two agencies on harmonizing our swaps regulatory and portfolio margining regimes.
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Crypto gives us a new opportunity to cooperate and do so publicly. As an initial step, we are calling on our agencies to hold a joint set of public roundtables to evaluate recent market events and risks, and to discuss how to regulate crypto responsibly. These roundtables would be open to the public, and panelists would include crypto users, investor and customer advocates, industry members, and other regulators. The goal would be to assess whether new regulations are necessary to protect the public and the markets, how existing regulations might be modernized to better account for innovation, and how technology is likely to reshape our markets. We could start with topics such as digital asset trading platforms, crypto derivatives, stablecoins, decentralized finance, and the balance between privacy and anti-money laundering measures.
Crypto is still early in its development, so we do not know where it will lead. The possibilities will stretch our imaginations. If we act now, it could lead our two agencies to work better together. Doing so would benefit the capital markets, not just the crypto markets.
Caroline Pham is a Commissioner at the Commodity Futures Trading Commission. Hester Peirce is a Commissioner at the Securities and Exchange Commission. Their views are their own, not necessarily those of their respective Commissions or fellow Commissioners.