The latest US bill unifies the SEC and CFTC to strengthen cryptocurrency regulation

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

On the 23rd, a rumor about taxing cryptocurrency transactions caused a market crash, with Bitcoin falling below $50,000. But this more important news seemed to be ignored. The two most powerful departments in the global crypto world seem to be joining forces, and it is self-evident what this will bring.

1 The new bill resolves the jurisdictional issues between the SEC and the CFTC

On April 20, the U.S. House of Representatives passed a new bill, the “Removing Barriers to Innovation Act of 2021” (HR1602), which is currently awaiting [Congressional approval](1). The main focus of this bill is on the jurisdiction of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over digital assets.

If Congress approves it, the SEC and CFTC will each send personnel to form a working group, which will divide the main jurisdiction over the laws, regulations and related issues of digital assets. This move will make the US regulation of cryptocurrencies more enforceable and powerful.

2 The dispute over jurisdiction between the SEC and CFTC has a long history

As a new thing, it has not been clear which regulatory department has jurisdiction over digital assets represented by cryptocurrencies. For a long time, the SEC's jurisdiction has been in the securities field. For example, ICO behavior is the issuance of unregistered securities, so it naturally falls under the jurisdiction of the SEC, while commodity futures fall under the jurisdiction of the CFTC. For example, the previous CFTC investigation into Binance was based on this.

However, for many issues, the jurisdiction of both parties is not very clear. For example, the recent lawsuit initiated by the SEC regarding Ripple, according to the jurisdiction of the SEC, obviously regards Ripple as a security. In response, Ripple argued that Ripple is just a commodity, not a security. And Ripple raised a sharp question: if Ripple is a security, why is Bitcoin not?

According to the SEC’s definition, whether an asset is a security depends on whether the holder sees it as an investment that can generate returns in the future. From this perspective, Ripple is indeed similar to Bitcoin. If it is a security, then both parties are, and if not, then neither party is. However, former SEC Chairman Jay Clayton clearly stated in 2018 that Bitcoin [is not a security](2), which brings certain difficulties to the lawsuit against Ripple.

3 SEC and CFTC set up a working group to make supervision more efficient

Since the SEC and CFTC work independently, their work efficiency is inevitably low. Previously, the two departments have cooperated in joint law enforcement [precedent] (3). Take the digital asset trading app Abra as an example. In 2019, Abra provided customers with the service of purchasing stocks through cryptocurrency, which attracted penalties from the SEC and CFTC. For the SEC, Abra provided a stock-based contract transaction, and any stock-based derivatives fall within the scope of the SEC's supervision; for the CFTC, since virtual currency belongs to the category of commodities, the contract products provided based on commodities are naturally within its jurisdiction.

It can be seen that the cooperation between the SEC and the CFTC has greatly improved the regulatory efficiency of the two major departments, not only distinguishing the jurisdiction in advance, but also preventing multiple management. The passage of this bill has cleared the institutional obstacles for the cooperation of the two parties in law enforcement.

Of course, in addition to the SEC and CFTC, there are also the Treasury Department's Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), etc., which have a certain degree of jurisdiction in the field of cryptocurrency. In addition, there are local regulatory agencies such as the New York Department of Financial Services (NYDFS). It can be foreseen that the establishment of the "Removing Barriers to Innovation Act of 2021" will remove some obstacles to improving regulatory efficiency, but for a certain period of time, the phenomenon of multiple supervision will continue to exist.

Reference: This article will show you the biggest threats to Binance: US CFTC and US SEC

[1]:https://www.congress.gov/117/bills/hr1602/BILLS-117hr1602ih.pdf

[2]:https://ethereumworldnews.com/bitcoin-is-not-a-security-says-sec-chairman/

[3]:https://decrypt.co/35396/sec-cftc-joint-attack-stocks-platform-abra

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