The International Organization of Securities Commissions (Iosco)’s attempt to harmonize crypto regulation will have no immediate impact, as national regulators are still failing to understand jurisdictional governance, says a lawyer. While the CEO of a crypto exchange says the lack of adoption of current regulation to crypto, has created a bottleneck effect.
“While efforts to collaborate such as what Iosco is doing should be celebrated, we shouldn’t expect that it is going to lead to immediate results,” says Stephen Rutenberg shareholder in Polsinelli’s fintech and regulation practice.
“There are a lot of laws and regulation, and when something doesn’t neatly fit into a box, it often gets covered by lots of different regulators. For instance, if you are doing anything crypto related in the US, does this revolve around the CFTC, or FinCEN, or is this a security under the SEC as well as how it will be treated by the IRS for tax purposes. Because it is unclear of what its status is, and maybe its status is a lot of things, you have multiple regulators that are trying to understand and regulate it.
“It is very difficult for parties to know what regulator or what laws they are regulated by, and it is also difficult for the often overworked regulators to provide the clarity that the market is looking for. It is rare for a regulator to say, ‘this is clearly not under my jurisdiction,’” he says.
On May 28, the board of Iosco published a consultation report and requested public feedback on identified issues, risks, and key considerations relating to crypto asset trading platforms.
“Iosco believes that fostering innovation should be balanced with the appropriate level of regulatory oversight,” the report said.
“In addition, there may be concerns about what procedures the CTP has in place in the event of a loss of participant assets, including a loss due to theft, bankruptcy or insolvency of the CTP,” the report continued.
Regulators have dragged their heels over crypto assets and platforms, says Kevin Murcko, CEO of crypto exchange CoinMetro.
“In the crypto industry for the most part we are starting to see a lot of lobbying, and this report is a bit of lobbying, that’s for sure,” says Murcko. “We already have all the regulation we need that can easily be applied to crypto platforms. It is the same regulation that gets applied to every bank, every hedge fund, every derivative platform - all these platforms have the same regulation. Why would we treat this asset vehicle delivery system any differently? It really doesn’t make any sense. You’re reinventing the wheel for no real reason.
“The lack of regulators actually seizing the opportunity to apply existing laws, is creating a bottleneck that these industry players, that are creating these reports think can be solved with less regulation,” he says.
On May 29, the World Economic Forum launched six Global Fourth Industrial Revolution Councils, to “work together to develop policy guidance and address ‘governance gaps’ or the absence of well-defined rules for emerging technology.”
The Australian Securities Investment Commission (ASIC) updated its guidance on crypto assets and Initial Coin Offerings (ICOs) on May 30.
“Where a financial product is to be exchange-listed, we expect licensed Australian market operators will play an important gatekeeper role in ensuring the suitability of issuers and the products they are permitted to list and trade on their markets,” the information sheet stated.
Additional challenges remain for the crypto asset market regarding the lack of services providers in the space, according to Murcko.
“You don’t have the same broad list of traditional service providers that exist in other financial markets that can assist in putting in the infrastructure these crypto companies need to make sure that they are compliant, and that they can actually turn a profit. But that doesn’t exist yet,” says Murcko.
Rutenberg says challenges remain for those still trying to turn a profit.
“We have to understand that the whole crypto asset market is relatively small and for many companies not yet profitable. In some ways the amount of effort that banks and institutions are spending on this is disproportionate to its current market size. It is hard to justify doing anything different, particularly when innovators don’t have a path of regulatory certainty,” says Rutenberg.