Prominent names in the finance and cryptocurrency industry who understand to nuances of regulations on financial and technological products and the industry as a whole have come forward to caution the SEC to take care in handling regulation regarding cryptocurrencies so that the benefits of those could be reaped.
Modernization of regulation key to accommodate cryptocurrency
The group of Industry have replied to Ms Dalia Blass’s letter, who happens to be Director Division of Investment Management U.S. Securities and Exchange Commission, which she wrote to Paul Schott Stevens President & CEO Investment Company Institute and Timothy W. Cameron, Asset Management Group – Head Securities Industry and Financial Markets Association in January 2018 regarding “Engaging on Fund Innovation and Cryptocurrency-related Holdings”. Through this letter, the group of industry veterans which comprises of bitcoin core developer Bryan Bishop, former Morgan Stanley managing director Caitlin Long, e-commerce coding pioneer Chris Allen, founder of Ernst & Young’s blockchain team Angus Champion de Crespigny and fund manager attorney Gavin Fearey, put forward their intent to assist the SEC by disclosing what they feel are critical considerations for handling cryptocurrency regulation that was not addressed in other comment letters previously made public by the SEC.
The letter goes on to state that the digital assets are a unique asset class with unique strengths and abilities and if they are fitted into existing market infrastructure, there will be the introduction of risks to investors that would not otherwise exist. The group suggests that the SEC should try to possibility update the market infrastructure if it actually wants to take advantage of Bitcoin and other technology and further strengthen the financial system. Under this section, the authors of the letter warned that the traditional financial practice of storing customer funds in a single account would undermine some of the core strengths of cryptocurrency
“Digital assets are natively segregated, and maintaining this natural segregation at all times would best protect investors by conforming to the architecture of digital asset technology,” according to the report.
The letter also states
“ Commingling (of digital assets) creates a “honeypot” for hackers to attack, and the ability of financial institutions to manage this security risk is likely to vary widely”
Is the letter targeting the operations of ICE’s cryptocurrency venture Bakkt
According to the report published in Forbes, the letter, specifically, warns against practices employed by the Intercontinental Exchange (ICE), which owns the New York Stock Exchange and recently announced its intention to launch a cryptocurrency exchange of its own.
Among a number of recommendations made in the letter, Bryan Bishop, who has been contributing to bitcoin’s core code since 2014, argues that the biggest change the SEC needs to implement is to partner directly with cryptocurrency engineers to develop a new kind of regulation.
“Bitcoin is fundamentally a technological system with many nooks and crannies,” Bishop told Forbes. “It’s the concept that rules can be enforced using software, math, and cryptography rather than policy.”
Similar concerns were raised by Caitlin Long in her article on Forbes where she explicitly said
“Don’t treat bitcoin like a normal financial instrument—it’s not,” she told Forbes. “Don’t apply old rules to the new system.”
While the people were getting excited about the entry of institutions into cryptocurrencies, the concerns raised by the veterans regarding current regulations and enterprises is something that can’t be overlooked. The regulators will have to surely upgrade the current regulatory framework for cryptos something that might face a resistance from SEC.
Will SEC up its game and upgrade the regulatory framework to accommodate cryptocurrencies? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.