Coinbase Offers Crypto-Focused Financial Regulator to Replace SEC for Digital Asset Oversight


Cryptocurrency exchange Coinbase Global Inc. released a proposal for a comprehensive reform of U.S. federal digital asset regulation on Thursday, urging Congress to create a new agency to regulate the sector under a different framework than that used to oversee the legacy financial services industry.

“There should be a designated federal regulator for digital asset markets,” Faryar Shirzad, policy director at Coinbase COIN,
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told reporters on Thursday. “A digitally native and vibrant regulator would help ensure that the transformation of the financial system serves as many members of the American public as possible.”

The crypto industry has long irritated the U.S. financial regulator, made up of several federal and state agencies, including the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Reserve. He also protested against agencies like the SEC’s use of securities laws to regulate digital assets, which he says are fundamentally different from traditional assets like stocks and bonds in a way that makes them incompatible with the existing regulatory framework.

Shirzad said cryptocurrencies and the distributed ledger technology behind them have the potential to revolutionize the global financial system. The current regulatory framework, he said, “assumes the continued existence of a series of financial intermediaries” like clearing houses and brokers who could be made obsolete by blockchain technology.

Coinbase’s proposal postulates that this new financial regulator would be primarily responsible for the registration and oversight of digital asset markets, or MDAs, in order to combat fraud and manipulation and to oblige issuers of digital assets. to disclose relevant information to market players. The new regulator would also oversee the so-called initial coin offerings, which are often used to raise money for new businesses, in the same way that state-owned companies raise money by issuing shares.

In recent years, the SEC has taken a hard line against certain issuers of digital assets, arguing that when tokens are sold to the public to fund a for-profit business, those instruments are securities and subject to registration requirements and for disclosure under US laws dating back to the 1930s.

Todd Phillips, director of financial regulation and corporate governance at the left-wing think tank Center for American Progress, told MarketWatch that Coinbase’s proposal fails to recognize that digital assets can serve a wide range of purposes. and should be regulated according to their function rather their digital form.

“They treat digital assets like a giant asset class, and they’re not. Some of these instruments are securities, some commodities and some other stuff, ”Phillips said. “This proposal, if implemented, would allow many, if not all, state-owned companies to stop issuing shares, start issuing coins and avoid securities laws.”

SEC Commissioner Caroline Crenshaw expressed similar concerns when she opposed the creation of a regulatory safe harbor for crypto assets that advocates say would allow the industry to innovate. without tedious supervision.

“Granting a special exemption to these projects would provide unfair advantages to blockchain-related companies and disadvantage everyone: participants who raise capital in a compliant manner who support healthy markets and informed investors,” Crenshaw said during the presentation. a speech at the Practicing Law Institute on Wednesday.

The SEC has indicated that it does not consider bitcoin BTCUSD,
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or ether ETHUSD,
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– the two most valuable cryptocurrencies by market cap – to be securities, but she has taken legal action against issuers of other tokens and crypto exchanges for failing to register with the agency. The industry complained that the SEC failed to provide clear guidelines outlining the characteristics that define a digital token as security.

“I commend Coinbase for developing its thoughtful framework for regulating digital assets,” Michael Piwowar, former acting chairman of the SEC and executive director of the Milken Institute Center for Financial Markets said in a statement. “Regulatory certainty in the United States is urgently needed to maintain our leadership in responsible financial innovation. “

Coinbase CEO Brian Armstrong started a public quarrel with the SEC last month after the regulator threatened to sue the company if it went ahead with its planned ‘Lend’ product, which would allow coinbase users to earn interest on the cryptocurrency deposited with the company. Experts in securities law noted that because Coinbase is not a regulated bank, an offer like Lend would be considered a debt instrument and therefore a security.

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