On Thursday, the House of Representatives in the US had a hearing on digital asset regulation and one of the most important themes discussed was disclosure. Sean Maloney, who is the chairman of the House Agriculture Committee, said that their focus would be on the gaps that exist in the regulation and oversight of underlying spot markets and derivatives.
The Securities and Exchange Commission (SEC) and the Commodity Futures and Trading Commission (CFTC) are the two regulatory authorities in the United States that oversee the financial markets. These are answerable to the Agriculture Committee.
The chief strategy officer and the co-founder of Chainalysis, Jonathan Levin also testified at the hearing. He said that transparency in the crypto space would give unique insight into the workings of the market, which includes the risks associated with it. He said that it was possible to use blockchain for uncovering information regarding illicit activities.
Christopher Brummer, a law professor at Georgetown University, stated that the disclosure law implies that consumers don’t have access to the same information as issuers. However, the truth is that blockchain is fully transparent and the same information is accessible to everyone, but it is hard to understand.
Talking about consumer protection, Brummer said that it was essential to read disclosures and not just file them because consumers could be left vulnerable due to their complexity. Charles Hoskin, the chief executive of Input-Output Global, said that rather than aiming for strictness, it was necessary to prioritize efficacy in order to navigate the global market, which is evolving quickly. He also added that the use of policies like Anti-Money Laundering (AML) and Know-Your-Customer (KYC) was not doing any good for regulators who had implemented them.
The CFTC and SEC
Vincent McGonagle, the director of the market oversight division of the CFTC, said that they have the expertise required for monitoring the crypto-cash market. While the money transmission laws of the state currently regulate the market, but several proposals have been submitted to grant that authority to the CFTC. McGonagle stated that the concerns of the CFTC were different from that of the state laws. He said that adding a layer of protection for consumers should be a priority.
Bringing up the debate on whether digital assets fall under the category of securities, or commodities, McGonagle said that the Securities and Exchange Commission (SEC) can make that distinction when required. He said that it was extremely difficult to determine when securities become decentralized and are no longer under the oversight of the SEC. He also added that there was a lack of a legal mechanism that could then transfer these commodities under the oversight of the CFTC and this was a huge gap that needs to be addressed.
It is this debate that has seen the SEC file a case against Ripple Labs, as the federal agency claims that the XRP token issued by the company is a security, while the company refers to it as a commodity.