Last week, two leaders of the Securities and Exchange Commission addressed the issue of cryptocurrency regulations, and the main takeaways were that while the approval of exchange traded funds and clarification of initial coin offering rules was likely to happen, it’s not likely to be anytime soon.
In an interview with Capitol Hill news source Roll Call published on Feb. 6, the SEC’s only Democrat-appointed commissioner, Robert Jackson Jr., said that while he thinks “someone will satisfy the standards that we’ve laid out there,” to create a cryptocurrency exchange traded fund, the timeframe he gave was a not particularly optimistic, “eventually.”
Two days later, in a speech at the University of Missouri School of Law, Hester Peirce, the most cryptocurrency-friendly of the SEC’s four sitting commissioners, said the need to figure out how—or if—existing regulations can be made to fit the challenge presented by blockchain-based cryptocurrencies offers her agency, “a wonderful opportunity … to rethink its approach to innovation.”
Looking at the very ambiguous question of how initial coin offerings (ICO) fit under existing securities regulations, Peirce argued that “ambiguity” might be a good thing for virtual currencies. “We might be able to draw clearer lines once we see more blockchain projects mature,” she said. “Delay in drawing clear lines may actually allow more freedom for the technology to come into its own.”
To that end, she noted that “supplemental guidance” about how securities laws will affect ICOs is forthcoming, and that in the meantime the SEC is willing to provide “no-action relief”—essentially providing pre-application advice on whether the agency would recommend opposing a specific proposal under its interpretation of existing regulations.
She added, “[i]f we act appropriately, we can enable innovation on this new frontier to proceed without compromising the objectives of our securities laws—protecting investors, facilitating capital formation, and ensuring fair, orderly, and efficient markets.”
That said, Jackson’s comments in the Roll Call interview about the agency’s July rejection of Winklevoss Bitcoin Trust’s Bats BZX Exchange pointed to the distance between him and Peirce when it comes to what is an acceptable level of risk.
Peirce won widespread praise among the cryptocurrency faithful for voting to approve the exchange, and castigated her fellow commissioners for acting like “helicopter parents.”
Jackson, by contrast, told Roll Call, “I come to this job thinking about my mom and dad. Would I have wanted them to be able to buy that ETF? Hell no. Hell no. And I might not be sitting here if my father had, so, yeah, I take really seriously putting the American stamp of approval on any investment product. I’m not going to do it until those questions get answered.”
Do cryptocurrencies endanger global financial stability?
The SEC commissioners were not the only U.S. financial officials expressing concerns about virtual currencies last week.
On. Feb 10, the U.S. official who heads up the international Financial Stability Board (FSB) appeared to reverse the organization’s conclusion that cryptocurrencies do not present a challenge to the stability of the global financial sector.
Created by the G20, the FSB is made up of central banks and financial regulators of 24 countries and the European Union.
On Feb. 10, U.S. Federal Reserve Board Vice-Chairman for Supervision Randal Quarles announced a review of the FSB’s framework for assessing vulnerabilities in the global financial sector. In doing so, at a meeting of the special governors of the Bank for International Settlements, Quarles mentioned in passing that “developments like the emergence of crypto-assets may challenge any framework.”
By contrast, a report released by the FSB on Oct. 10, 2018, said “crypto-assets do not pose a material risk to global financial stability at this time.”
Of course, the report went on to warn that as crypto-assets evolve, they had the potential to impact financial stability in the future, noting that “[s]uch implications may include: confidence effects and reputational risks to financial institutions and their regulators; risks arising from direct or indirect exposures of financial institutions; risks arising if crypto-assets became widely used in payments and settlement; and risks from market capitalisation and wealth effects.”
So, the two comments are not exactly contradictory, as Quarles was likely looking at a different time frame than the authors of the October report. Still, it’s a marked change in tone from the head of an influential international body.