The SEC Tightens the Screws
On June 5 2023, the US Securities and Exchange Commission filed 13 charges against Binance, including for “[…]operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance.US platform; and the unregistered offer and sale of securities.”
Coming directly in the wake of the charges leveled against Coinbase and a number of other crypto exchanges, and following numerous strong comments about crypto assets and the basis for regulating them by SEC Commissioner Gary Gensler, the Binance case illustrates a growing trend of overreach by United States regulators in the crypto space. The net result of this overreach has been to introduce confusion and insecurity into a vibrant and growing industry, to dramatically stifle innovation without providing notable protections for customers, to measurably hurt consumers’ ability to access financial services, and to significantly disadvantage the United States as an attractive location for crypto innovators.
The Crypto Credit Association (CCA) maintains that sensible, consistent, and clear principles-based regulation is the best way to protect consumers and financial services sector stability. We understand that the crypto sector collectively has some way to go in developing and adopting industry-wide good practices such as financial risk management. This is why the CCA, together with our members, are actively developing and publishing credit risk management principles, recommendations, and tools for the crypto lending industry.
It is our position that the SEC’s aggressive posture towards crypto actors is a politically motivated way to save face, after being asleep at the wheel in the run-up to FTX, Celsius, BlockFi, and other abject failures. It risks discrediting and undermining the very real need for regulatory enforcement against bad actors in the industry, whether malicious or negligent, who have done significant financial and reputational damage.
Regulation should have the maximum total utility for all stakeholders in a market as its goal. This means protecting customers, economic stability, innovation, and the ability to do business in a fair market. With this in mind, regulators should acknowledge that customers clearly want to participate in the crypto ecosystem. Shutting off or excessively complicating legitimate existing means of doing this, as opposed to providing guidance and clarity, will only drive customers to alternative, high-risk, and entirely unregulated “back alleys”. As a result, rules must be clearly stated, actionable, and consistently enforced. While not perfect, the European Union’s Markets in Crypto Assets (MiCA) directive is widely regarded as a step in the right direction in this regard.
The SEC’s lawsuit against Binance, despite the company’s actions to comply with US law and its efforts to transparently meet regulatory requirements, risks driving US-based crypto firms to relocate to jurisdictions with regulation that is clear, practicable, and coherent. Furthermore, attempts to apply US law outside the jurisdiction of US regulators will increasingly result in fewer firms being willing to do business in the country, with a loss of competitiveness by American industry and a loss of choice for US customers.
The CCA encourages US-based crypto actors to work with organizations such as the CLIC Committee to constructively informCC US financial services legislation and regulatory enforcement. We hope that the US Congress understands the need for, and benefits of, clear rules and good practice guidance for all financial services actors, rather than arbitrary and excessive punitive enforcement of unclear rules, such as those relating to crypto assets as equity, or crypto risk management.
In light of the SEC’s charges against Binance, it’s clear that the future of the crypto industry in the United States hangs in the balance. The current regulatory environment, marked by perceived overreach and ambiguity, threatens to stifle innovation and drive crypto businesses away.
Many jurisdictions are moving in the right direction of working with industry to develop and deploy clear, actionable, principles-based regulation, and supporting common and responsible practices for the industry. Worryingly, the SEC’s heavy-handed enforcement of already-inconsistent US regulation risks driving similar, arbitrary actions elsewhere. Not least, the current approach of regulators seems intent on ensuring incumbent players maintain viability and dominance in the future of financial infrastructure. This degradation of accessibility and innovation is detrimental.
It’s time for a change. Crypto has huge potential to positively influence the global financial sector to the benefit of those whom it serves. To fulfill this potential, the industry needs a balanced, clear, and principles-based regulatory framework that protects consumers, ensures stability, and fuels innovation.
The CCA believes that access to the benefits of crypto innovation, and the ability to participate in this growing part of the economy, should be accessible to all. The CCA is leading the charge, but we can’t do it alone. Every crypto entity that is based or active in the US must step up and play an active role in shaping the legislation and regulatory practices that will define our industry. The future of crypto and its benefit to customers and society, is in our hands. It’s time to take action – consider joining the CCA today, and help us drive positive change.