CFTC & SEC TALK BITCOIN & CRYPTOCURRENCY REGULATION Regulators Push Congress For More Regulations



and the next element is to exercise our legal authority over derivatives on virtual currencies while clarifying our statutory limitations to be clear the CFTC does not regulate the dozens of virtual currency trading platforms here and abroad we cannot require them to meet requirements like trade reporting and market surveillance standards for conduct capital requirements or even cyber protections or platform safeguards that these are all standard regulations in the futures markets we oversee yet through our authority over commodity derivative markets we do have enforcement power over spot coin markets and with newly launched Bitcoin futures the CFTC can now obtain trading data and analyze it for fraud and manipulation in five underlying spot markets and that leads to the final element and that is tough enforcement led by the CFTC's virtual currency Enforcement Task Force we've launched several civil actions over the past few weeks cracking down on fraudsters and manipulators and more will follow in closing I want to quote something that chairman Clayton and I wrote recently in The Wall Street Journal these markets are new evolving and international they require us to be nimble and forward-looking and coordinated with state federal and international colleagues and engage with important stakeholders including Congress I'm glad to be with you today and I hope my kids are listening thank you very much Thank You chairman Gian Carlo and I'll begin the questioning first I will say I've had those dinner conversations with my own children and you're right this is an incredibly interesting but growing new area of financial challenge particularly among our these my children and yours both of you have said in one way or another that neither of you neither of your agencies have complete jurisdiction over crypto currencies the question I have is whether you have sufficient jurisdiction and I'd like both of you to address that question should Congress address revising and refining our financial law so that one agency or a group of agencies have complete jurisdiction or if you look at the jurisdiction of all agencies today do we have the sufficient jurisdiction in place today chairman Clayton well thank you in my position you're always cautious about speaking for other agencies so I I thank you understood for saying that we should all come to bear to be very direct we should all come together the federal banking regulators CFTC the SEC there are states involved as well and have a coordinated plan for dealing with the virtual currency trading market I think that our Main Street investors look at these virtual virtual currency trading platforms and assume that they are regulated in the same way that a Stock Exchange is regulated and as I said it's far from that I think we should address that issue so I am i hearing you say that you don't think we need to have additional legislative authorities I think we may I think we met so first you should get together and tell us what you can and can't do and then advise us I think that's a very good way to put it senator chairman giancarlo I think that's exactly right I think the first step is to recognize where the gap is so there is as we both said in different ways the it's what we call the spot market for Bitcoin is not a regulated marketplace now for us at the CFTC we're familiar with that because we generally don't have regulatory supervision over the spot markets for which derivatives apply that is a long-standing basis we regulate derivative markets the underlying markets we surveil and we will take enforcement action for fraud and manipulation but we don't we don't have the ability to set the standards in those markets and that's what we have today in Bitcoin and unless it's an ICO and then as chairman Clayton described he also doesn't have diction so there is that gap and I think the starting point for informed conversation is there is that now there are other elements to it there are other agencies that come to bear on this so state regulators there's a patchwork of state regulation across the nation some states have been very assertive in this area other states less so and some states have nothing FinCEN as you referenced there's also been active in the area in terms of anti money money laundering in and know your customer requirements so there are there's a patchwork here but there's not a comprehensive structure and that's something that I think is a is a policy discussion an important one to be had alright thank you and and you've led to my next question much of the activity in the virtual currency markets is cross-border and international and so that raises obviously the question of what challenges does that present and what is the appropriate role for FinCEN that both of you I'd like to respond I only have about a minute left so think about 30 seconds each if you would I will try to be quick the International nature of this market is why a patchwork is probably not sufficient if it's going to continue to develop as a as a significant market and one that our our Main Street investors access from Vincennes perspective there there are reports that we all have heard that this currency these crystal currencies are used for illicit activity think thinset has been stepping up in that regard and I encourage them to continue to do so in this challenge of global markets is a challenge that I think we face now in many regards in the 21st century with the dawn of the internet markets have become truly global not just in virtual currencies but so many things and it does become a challenge as we think about regulation we certainly have had that challenge working with overseas regulators in the area of derivatives regulation as a result of the dodd-frank act the challenge of bringing these regulations together in a comprehensive whole it is is really a tremendous challenge for all of us so in this area it requires a lot of new thinking well thank you I appreciate your remarks from both of you on these issues and I would encourage you to form that workgroup get together between yourselves the state regulators other appropriate federal regulators and evaluate exactly what our regulatory structures should look like in America to deal with this and let us know your thoughts your further thoughts on that I'd appreciate that Senator Brown mr. Chairman I turn Clayton again nice to see you the last year initial coin offerings raised about four billion dollars globally you've testified that SEC is focused on policing these transaction to protect investors how much of that four billion dollars was was raised in the u.s. it's not clear it's hard to get it it's hard to get a number on that because this is that this has been conducted on unlearn unregulated basis but I imagine I imagine senator a significant enough portion of where we should be paying attention and my understanding is during the last few months the SEC has taken four enforcement actions targeting coin offers for serious violations of law I mean that speaks volumes about the work that the challenges in front of you the chairman in response to the geras question you both talked leading with you sure Clayton but agencies working together and the importance of that on on this and other issues your testimony highlights cooperation between the SEC and CFTC chair Clayton regulating Bitcoin and other virtual currencies it doesn't mention any cooperation with the Consumer Financial Protection Bureau hundreds of consumers have filed complaints with the bureau about virtual currencies how have you been coordinating your work specifically on this but in other areas too with CFPB on this area largely through the F sake at the F sock I believe I have made it very clear my views in this area and that this is an area that we should all be on the lookout for on the lookout with regard to from each of our perspectives the CFPB is a member of F sock and they have heard my comments there on a on an enforcement perspective we're in the securities area I don't we don't see the CFPB on the Securities side of this I'm not aware of any direct coordination on a on a particular enforcement action but I could check on that in the past few months Joyce your bank credit Swiss UBS HSBC have been fined over 300 million dollars by other regulators for various forms of market manipulation but SEC has been quiet under your watch one study by Georgetown Law Professor found that SEC has quote virtually stopped enforcement actions against large entities often men often referred to as Wall Street firms huh how do we have confidence mr. chairman and that the SEC is willing to hold Wall Street accountable when the trend and penalties and actions is going the wrong way yeah I I am I actually saw that I saw that report that probably doesn't come as a surprise to you that someone sent it to me I found it I thought that annoying to be honest because it didn't reflect the fact that the gestation period for the cases we bring is roughly 22 to 24 months so any type of statistics you know necessarily have a latency period through them our Enforcement Division put out a report that talks about the numbers in a in a comprehensive way I'm happy with that report I'm also confident that the people who are in our Enforcement Division and leading it many of them former federal prosecutors two of them heads of the securities task force in the Southern District of New York former heads are pursuing our securities laws vigorously I have I have no doubt they come to work every day and they have my full confidence I hear you say that and I believe I believe you when you say that I remember the last SEC and it wasn't you the last SEC under Republican President how they were asleep it's a switch so this the chair of the rich was the governor the Richmond Federal Reserve used to tell me watch us and let us know you're watching us but I am further troubled by a statement by one the FCC's enforcement co-directors last fall that FCC might lose a hundred of its enforcement staff by not replacing those who leave compared to 2016 figures this would reflect a 7% reduction and enforcement headcount so how are you going to stay on top of developments and virtual currencies and the other enforcement all the other areas that we just talked about and to be able to fight traditional misconduct how are you going to do that when you're not replacing the if in fact that's the case that that is senator Brown personnel is my biggest challenge at the moment and if we have we have a we have a hiring freeze as a result of natural increases in costs a hiring freeze and people you know retiring or taking other jobs it reduces the size of the workforce at the SEC I could use more people and enforcement I could use more people in trading and markets those are the two areas where I think the American people would get the greatest return for additional bodies so when you come in front of us and I appreciate your candor when you come in front of us and tell us that you're having trouble filling those jobs and I've got no trouble I'm not I just can't well okay there's trouble that way all right did because of the freeze I isn't that message to those who those who want to game the system and those who wanted to frog the system isn't the messages the SEC is is not the cop on the beat that even the new chair wants it to be do I do I want more bodies to do more yes sir as the message that somehow we're you know asleep with the swish absolutely not in with your budget that's coming out our understanding is the budget I mean I I hope the freeze is lifted I hope the budget is enough and I hope that you will speak to us and and ask particularly people on the other side of the aisle for the dollars you need and the the flexibility you need to put those cops on the beat I I think I've I think I've been very straight about incremental amount of money and where I think value can be added Thank You senator Shelby thank you Thank You mr. chairman chairman Clayton you germán Jencarlos new chairman of two powerful regulatory bodies but you have different jurisdictions anything that smacks of security comes somewhere in your range does it not the ending with a commodity something that could be deemed a commodity clearly gums in your range the Federal Reserve is the biggest bank regulator we have and also the the treasurer is involved in this how are you going to put together a task force continue to do it on your own through the administration Oh to deal with the crypto currencies because you got the Fed you got the Treasury you got the commodities you got securities perhaps some others and we hadn't thought about before this gets out of control somewhere in the world let me start yes our history by recognizing the Treasury secretary he he has brought us together I was good the CFTC the SEC and representatives of the Federal Reserve to talk about this because senator you're exactly right that the funny thing about these cryptocurrencies is they only work if they're integrated with they only work for their purported purpose if they're integrated with the financial system and so therefore it necessarily touches on all of our regulation but just reinforced that the Treasury Secretary has been out on front on this is formed a virtual currency working group of ourselves the SEC the the Fed and FinCEN we've had a number of preliminary conversations and work streams developed I've had a number of bilateral conversations with the Treasury secretary on virtual currencies and we are going to be coordinating our various responses it's begun with just some broad conversations establishing our different jurisdictions so that we're all clear as to what we're doing but also what we're not doing where the gaps are do you need additional legislation in this area to both of you or can you think you can work it but task force together and get your arms around this without that I can't give you a definitive answer to that question because we should work together but senator we we we may be back with with our friends from Treasury and the Fed to ask for additional legislation but you know we live in a virtual world we know the doctor and they give you a virtual examination you know you we can go here and some virtual and this is was not my world might start out pencil and paper in school as you can imagine but in my day but at the same time this currency is crypto currencies they have they lack intrinsic value and it seems to me they lack liquidity sure people have probably made a lot of money going up and a lot of them made money and lost money going down but I don't know where the bottom is if the bottom was ever reached in as opposed to a sovereign issued currency you have a you disagree no senator I don't know where the natural equilibrium point is in this but I will tell you there are some economists who posit that there is a relationship between Bitcoin value and the the the the difficulty or the cost of mining these the which is a process of electronically producing these and that there are some charts I've seen that have lotted that correlation that seemed to be readily correlated until last summer when the price broke free of that correlation and that they came back into correlation late at the end of the year last year now I am NOT an economist I I find those things fascinating but I'm not an expert in it but the the point The Economist's are making is that there is some sort of floor that the the level said is not zero that there is some floor there tied into the cost of mining a Bitcoin I'm not endorsing that point of view are just sharing that with you Chairman Clayton do you have any comment yeah look I there are a lot of smart people who think there's something to the the value of the cryptocurrency in the international exchange and I'm not I'm not seeing those benefits manifesting themselves in the marketplace yet and from the perspective if I look at this expressive of protecting Main Street investors they should understand that how do you put a value on cryptocurrency is a market put a value on it does it go straight up and then straight down or what well that's you know what's something worth it's what somebody's willing to pay you for it but in our world the securities world you know there are rules that dictate how much you have to tell somebody about what it is they're selling them but part of your mandate are you know security exchanges to protect the investor exactly that's right and the chairman of the Commodity Futures Trading he's he's seen obviously commodities just go wild at times and yours your mandate is to watch the commodities right market integrity is generally perceived to be our core mandate you also mentioned personnel you know you mean personnel there's a hiring freeze on we talked the other day about this code gets in the realm appropriations and so forth I'm hoping that we will give you every tool you need to do your job and to hire the people that you mean to execute that thank you very much thank you Senator Reid was I very much thank you so much your testimony and following on the questions of Senator Brown and Senator Shelby you do need more personnel but very specifically do you have the technologists the computer experts that and you can begin to understand how these cryptocurrencies work the cryptologist and not just a sort of on a day to day basis so there's you know give you the temperature but look ahead and say this is the direction it's going which could have very significant deleterious effects Steve do you have anyone like that on the staff the students the answer to your question is we formed a cryptocurrency working group a cyber group they've done it they've got an exceptional job getting up to speed on this in a short amount of time and identifying some of the very issues we talked about

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