On February 6, a Senate hearing was held before the Banking Committee of the US Senate. This hearing focused on the
regulation of the cryptocurrency industry in the United States. The key stakeholders were the Presidents of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Jay Clayton and Christopher Giancarlo both came to expose the regulatory problems facing their services.
A firm but optimistic tone
The two commissionaires appeared before the committee with elaborate introductory remarks that set the tone. Both praised the benefits of the digital revolution brought by cryptocurrency and block-chain.
Jay Clayton pro-blockchain but reserved on ICO
Introductory remarks:
Jay Clayton, President of the SEC, was the first of two witnesses to speak. He began his speech as follows:
"For the sake of clarity, I divide this space into three categories. First, a promising new technology called blockchain, the second and third categories are cryptocurrency and ICO, which take advantage of the commercial opportunity created by the blockchain. "Jay Clayton
Clayton went on to list the many benefits that the government could derive from the blockchain. The president of the SEC even goes so far as to urge companies to come and work with the government to realize these benefits. However, he was more reluctant on the adoption of digital currencies and ICOs.
For him, cryptocurrencies have not reached the stated goal of reducing the cost of transactions. Moreover, he claims that cryptocurrencies "function as assets for investment and not as means of exchange". This affirmation may thwart, but contains some truth. Our expensive digital currencies are not yet mature enough to be used as traditional currencies and are still mostly used for trading and investing. As are the shares of a publicly traded company.
On ICOs in the United States:
According to Jay Clayton, companies that carry out ICOs make offers of financial securities. Like a startup looking for financing.
He stated :
"I feel that all ICOs I've seen are financial securities offerings. You can call it a corner or a token, but if it works like a financial title it's a financial title. Moreover, just because you invest in an ICO does not mean you invest in a blockchain-based service. "Jay Clayton
Clayton goes on to say that most of the OICs taking place on American soil are illegal. Since they are considered as offers of financial securities by the SEC, they should comply with the relevant rules.
Clayton finished his introductory remarks by warning the professionals involved in organizing the "illegal" ICOs. These are "directly in the line of fire of the SEC". Moreover, those who have consciously contravened laws on offers of securities are subject to sanctions.
All ICOs that have raised funds from US investors are technically illegal. Indeed, all companies seeking US funds must register with the SEC.
When a senator asks how many of these companies registered with the SEC, he simply said "none".
Christopher Giancarlo, a human testimony
A duty towards the young generation:
Giancarlo began his speech in an amazing way. He introduced himself as a father before returning to his regulator costume. The commissioner recounted how he and his wife tried, unsuccessfully, to get their child interested in the world of finance. They never succeeded, but overnight their children came to talk to them about the famous Bitcoin.
C.Giancarlo added:
"I imagine members of this committee have had a similar experience in their own family. It seems to me that we owe it to this generation to respect their enthusiasm for digital currencies by a thoughtful and balanced response, not a disdainful one. And yet, we must crack down on those who try to abuse the enthusiasm of younger generations through fraud and manipulation. "Christopher Giancarlo
The commissioner of CTFC also stressed the need to train officials and the public on cryptocurrencies. CTFC is trying to "learn all it can" about the digital currency sector. Giancarlo, recalled that the total capitalization of different cryptocurrencies and barely equal to that of McDonald's. And the capitalization of cryptocurrencies is hundreds of times smaller than the capitalization of gold to which they are often compared, which is $ 8 trillion.
A lack of authority:
Another element, according to the president, is regulatory coordination, because: "No body has direct authority over digital currencies". He was careful to stress the need to balance the exercise of legal power over digital currency derivatives. But also the importance of clarifying the statutory limitations of the CFTC, which has authority only in the futures market.
These limits, as Giancarlo has very clearly described, include the CFTC's lack of authority over the regulation of exchanges. He said, however, that the CFTC has authority over the cryptocurrency derivatives markets through the launch of Bitcoin futures.
Clear objective, complex execution
Christopher Giancarlo ended his initial speech by mentioning the importance of regulation. For him, the regulation must be national, but also international, a regulation country by country is not enough. Jay Clayton has a similar opinion on the subject. The two commissionaires also agree on the fact that no regulator has authority over the entire cryptocurrency market.
Important skills issues:
Senator Brown, who opened the hearing, said neither the SEC nor the CFTC has full jurisdiction over the cryptocurrency industry. In turn, the witnesses of the day supported this statement.
Senator Mike Crapo, Chair of the Senate Committee, asked the two regulators:
"You both said that you do not have complete authority over cryptocurrencies, but do you have sufficient authority? Should the Congress regulate digital currencies so that an agency or group of agencies has full jurisdiction over the sector? "Mike Crapo
Clayton argued that all federal banking regulators should come together to coordinate before they can fully answer this question. He added that they may need additional legislation in the near future.
Giancarlo agrees with Clayton, on the problems of competence, he reminds that the CFTC has authority only on futures whose underlying is a cryptocurrency. As for the SEC, it has authority only over ICOs considered as "securities", financial securities in French.
The discussion continued on the subject of international regulation, and all the difficulties that entails. In particular, the complications related to the coordination of the regulators of the different countries which can have divergent interests.
Ineffective regulators:
The two commissionaires agree on this point. They are understaffed. The subject was brought by Senator Brown, who asked a question about the non-renewal of 100 inspector jobs in the SEC.
Clayton admits that his body is understaffed. He takes a troubled tone by announcing the difficulties of the investigation service:
"Senator, the staff is my biggest challenge right now. We have a hiring freeze because of the natural increase in costs and retirements or the taking of other jobs. This reduces the size of our workforce. I would need more inspectors and I would need more people in the trading and trading department. "Jay Clayton
Senator Reed brings the debate on the quality of the regulatory staff. What interests Jack Reed is not the amount of staff, but the technological skills of them. What Jay Clayton answers:
"We created a cryptography working group and undertook significant efforts to upgrade and identify the market. But in these modern times, could you use more power? Always. "Jay Clayton
These confessions from regulators raise the question of their ability to regulate the market and ensure the safety of investors. Both organizations have a clear intention; regulate and protect, but do they really have the capabilities?
The final word :
The question-and-answer session continued, though not always on the subject of cryptocurrencies. Senators asked many questions. Notably on the different scams and hacks that affect the world of digital currencies every month.
Giancarlo recalled an important thing to those who want to see the cryptocurrency disappear to keep only the blockchain. "Without Bitcoin there might never have been a blockchain. Remember it."