Disclosure was a major topic at a US House of Representatives hearing on the regulation of digital assets on Thursday. Although the chairman of the Subcommittee on Commodity Exchanges, Energy and Credit of the House Agriculture Committee, Sean Maloney, specified that he would focus on the gaps in the supervision and regulation of derivatives markets and markets underlying cash, the debate was very broad.
The Agriculture Committee oversees the Commodity Futures Trading Commission (CFTC), which regulates financial markets along with the Securities and Exchange Commission (SEC).
The co-founder and chief strategy officer of Chainalysis, Jonathan Levin, said in his testimony that the transparency of cryptocurrencies offers a unique view of the markets, including their risks. Blockchain technology can reveal information about the entire network that is behind the illicit activities.
Georgetown University law professor Christopher Brummer noted that disclosure law assumes that issuers have access to information that the consumer does not, while blockchain is transparent but difficult to understand.
“Disclosures should be read, not just filed,” Brummer said several times in reference to consumer protection, adding that increasing the complexity of disclosure could create vulnerabilities for consumers.
The CEO of Input Output Global, Charles Hoskinson spoke of “mindset” and underlined the importance of principles and the need to seek “efficiency over rigour” in a rapidly changing global marketplace. However, he later expressed the view that no regulator is doing a good job with know-your-customer and anti-money-laundering safeguards at the moment.
When the participants moved on to ask more specific questions, the director of the CFTC’s market supervision division, Vincent McGonagle said that his agency has the expertise to oversee the cryptocurrency cash market. That market is now regulated by state money transmission laws, but there are multiple proposals to give the CFC authority over it. State laws serve a different purpose from the CFTC’s concerns, McGonagle said, and centralized clearing adds a layer of consumer protection.
Digital assets are defined as commodities, McGonagle said, but the SEC can determine when they are securities.. Determining when securities are fully decentralized and no longer subject to SEC oversight is a “tangle,” McGonagle continued, and there is no legal mechanism to transfer those commodities back to CFTC supervision.
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