Crypto Markets Require Legislative Framework

The absence of legislative and regulatory foundation to guide the innovation has been a concern in the crypto community, according to Sandra Parrado, Partner in PwC’s Cyber, Risk & Regulatory Consulting practice, specializing in Investigations and Anti Corruption practice areas.

“It’s been a regulation by enforcement. And the issue there is that it’s been circumventing the normal procedures around regulatory creation, which includes noticing public comments, a healthy open debate,” she said during the “Tracking the SEC’s New Agenda – Hot Topics in Securities Regulation, Accounting and Enforcement” webinar organized by PwC and BakerHostetler.

There are also some concerns that perhaps there’s an advantage to the first movers in the crypto space, she said.

“The tokens that are out there are already established, although there may be some relooking at going forward as current suite of tokens.” 

Parrado said that SEC’s Chairman Gary Gensler is “going to want to balance the investors and protecting the investors, both from the concerns around crypto itself, the crypto exchanges, and centralized finance platforms.” 

“But at the end of the other side of the coin is to foster innovation, not dampen innovation in investments. So this is probably going to require some Congressional involvement,” she added.

According to Parrado, legislation can then help survive the sort of changes in administration.

“Last week, Senator Warren sent a letter to Chairman Gensler outlining some of the critical questions that the SEC needs to think about, in terms of the assets themselves, the exchanges and these other platforms. And these are the bare bones authorities to regulate the space and protect the investors,” she said.

Parrado said she was surprised that Spring 2021 Reg Flex agenda does not include cryptocurrency: “I think that’s a signal that Chairman Gensler is looking for Congress to be involved, but he will use what is available to him. He stated this in his public addresses that he will enforce using current regulations around security to protect investors.”

She added that thus far there’s been probably about 7075 enforcement actions involving digital assets in the last half decade, and about 12-15 of those in the last six to nine months. 

“These fall in the categories of primarily unregistered coin offerings, false and misleading statements, fraud, and promoting without disclosing positions.” 

“Chairman Gensler has stated that he feels that there’s insufficient protection for investors in these crypto exchanges. But if you wanted to understand how Chairman Gensler will potentially steer this ship, I think you only need to look at what he has done with the CFTC in terms of the swaps that were an issue in the financial crisis, and how he navigated that through enforcement, regulation and legislation.”