Making Progress on Decentralized Regulation – Time to Talk Crypto Together

Decentralization is a frequent theme in crypto conversations. Usually the term refers to the actual or desired elimination of intermediaries from finance, social media or other human endeavours. But “decentralized” is also an apt description of the crypto regulatory landscape. Crypto has many real and ambitious regulators. Decentralizing regulation can have benefits, but if not properly managed, it can also compound the already confusing lack of regulatory clarity around crypto. Cooperation between regulators is essential for strong, efficient and 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. For the past few years, both agencies have wielded regulatory authority over crypto and aspire to increase their regulatory reach over the technology. Statements from the presidents of both agencies reflect an eagerness to regulate crypto assets and markets.

The shared, and potentially competing, aspiration for regulatory power over the same activity is not new to the CFTC and the 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 paths are not always clear. So our two agencies have gone through tough times in their relationship, but have also found ways to work together. For example, under the leadership of former SEC Chairman Jay Clayton and former CFTC Chairman Heath Tarbert, in 2020 the two agencies held their first joint town hall meeting to vote on a common rule and issue a request for comments. This meeting came after several years of intense cooperation between the two agencies on harmonizing our regulatory regimes for swaps and portfolio margins.

Crypto gives us a new opportunity to cooperate and do so publicly. As a first step, we are calling on our agencies to host a series of joint public roundtables to assess 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, investors and customer advocates, industry members, and other regulators. The aim would be to assess whether new regulations are needed to protect the public and markets, how existing regulations could be modernized to better accommodate innovation, and how technology is likely to reshape our markets. We could start with topics like digital asset exchanges, crypto derivatives, stablecoins, decentralized finance, and balancing privacy and anti-money laundering measures.

The crypto is still in the early stages of its development, so we don’t know where it will lead. The possibilities will stretch our imagination. If we act now, it could lead our two agencies to work better together. This would benefit capital markets, not just 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 committees or fellow Commissioners.

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