Regulators are of the view that better transparency will benefit crypto investors. In addition to encouraging fraud, the lack (or even absence) of regulation of crypto-assets does not provide them with any guarantee of protection. As with securities intermediaries, crypto platforms require regulations aimed at minimizing operational risk according to the SEC (The US Securities and Exchange Commission).
More transparency to protect crypto investors
According to regulators, some platforms do not actually register investors’ interests on the blockchain. Others operate without sufficient assets to cover depositors. In the face of which, the SEC (the US federal financial market regulator and supervisor) is demanding more transparency from crypto platforms.
SEC Chairman Gary Gensler recalls recent market turbulence. Some exchanges had to freeze withdrawals and/or file for bankruptcy. These types of events, he says, are precisely why crypto firms should comply with the laws. He is talking here about securities laws. Because yes, the SEC considers cryptocurrencies as such.
The SEC just proposed an amendment to a rule. The latter would require private equity funds and hedge funds to disclose more information about their investments/assets. This is to better monitor systemic risks. Gary Gensler says: With this final rule, regulators will gain transparency in an important sector of the financial market to better assess risks to the entire system “.
Crypto platforms deemed less responsible
Regulators denounce the “laxity” of crypto platforms. They also lament the hype surrounding crypto-assets which contributes to regulatory distraction. They recall that the creators of Bitcoin promised that cryptocurrencies would solve problems of trust. The new system was also supposed to reduce reliance on centralized intermediaries.
However, crypto-assets, they say, have just created new financial intermediaries that are less responsible than the big banks. New crypto exchange and trading platforms are not subject to the standards imposed on securities market intermediaries. As a result, investor protection is weak. Allegations of fraud and conflicts of interest are common.
There are no specific rules to ensure the protection of client assets. There are no rules regarding how trades are executed. Crypto exchanges are not required to have systems to prevent fraud and manipulation. Nor are there rules to prevent or minimize conflicts of interest. And these exchanges can engage in proprietary trades against their clients.
If the DRY sees investor protection in transparency, the community of crypto followers deplore attempted interference by regulators. The SEC for its part maintains that it has jurisdiction over crypto-assets considered securities. They nevertheless recognize that many crypto-assets, including the most widely traded ones like bitcoin, are not securities. Still, regulators argue that crypto needs a regulatory framework.
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