What If Regulators Wrote Rules for Crypto?

Regulators are in no hurry to write rules for crypto. The Securities and Exchange Commission and Commodity Futures Trading Commission have brought a combined total of more than 100 enforcement actions against crypto-asset market participants. Yet, neither agency has issued a single crypto-specific rule, and it is unlikely that they will change course any time soon. But what if the agencies decided to do so? What sorts of rules could they write using their existing regulatory authorities? Federal securities laws are principally designed to reduce information asymmetries between the issuers of securities and the investing public. When a firm elects to raise capital from investors by selling a security, the laws require the firm to make investor disclosures to minimize the informational disadvantage of outside investors. Additionally, the laws require exchanges, brokers, dealers and investment advisers who provide access to securities or securities-related advice to register with the SEC and adopt policies and procedures designed to protect investors. The framers of the federal securities laws didn’t have programmable crypto assets in mind when they drafted the laws. But the SEC has the statutory authority to issue rules that would make it possible for crypto assets and crypto intermediaries to operate within the contours of federal securities laws. The agency could start by writing rules to establish a workable framework for crypto-asset security issuances and exchanges.

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