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The chairman of the Securities and Exchange Commission provided testimony to Congress that could encourage Congress to develop a strategy for regulating cryptocurrency exchanges.

SEC Chairman Gary Gensler made the comments during a hearing before the House Financial Services Committee on May 6. Gensler’s prepared testimony did not explicitly mention cryptocurrencies, but later in his live remarks, the chairman seized an opportunity to note that exchanges like Coinbase and Binance lack a regulatory framework. Having one in place, Gensler said, could instill more confidence in them.

LEGAL TOKENS

Currently, cryptocurrency exchanges in the U.S. are required to register as a Money Services Business with FinCEN and obtain money transmitter licenses in applicable states, but are not subject to any comprehensive federal regulatory scheme. Congress certainly could pass laws to put in place such a regulatory scheme, and such laws very likely would result in an increased confidence in U.S. cryptocurrency exchanges (and perhaps even provide for a way to list cryptocurrency tokens that are securities(?)). However, it would likely take years until actual regulations are put in place. Additionally, such a move may have some unintended consequences: (1) becoming compliant with such regulations will drive out smaller players and will become a barrier to entry for new entrants and (2) it may cut off access to non-U.S. cryptocurrency exchanges for U.S. residents if those exchanges don’t comply with the U.S. regulations.

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Author's Assets

Casey Jennings

Casey Jennings | Associate

A member of Seward & Kissel’s Financial Services Regulatory Group and Blockchain and Cryptocurrency Group, Casey advises financial services companies – including banks, broker-dealers, investment funds, service providers, and financial technology companies – on federal and state banking and securities law issues and the structuring of new financial products, including anti-money laundering, deposit issues, token offerings, custody of traditional and crypto assets, transfer and liquidity issues, Volcker Rule issues, and investments in crypto assets by funds and other investors. Before joining the firm, Casey served as counsel to the Consumer Financial Protection Bureau, where he developed and implemented financial regulatory policy, including the first CFPB rulemaking to rely on unfair, deceptive, and abusive acts and practices (UDAAPs) authority. Since then, he has:

  • Represented e-retailer APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of the online marketplace, OneGold.com.

“The whole notion of crypto is that there are no gatekeepers and the BSA requires that there be gatekeepers. Those two notions are very much at odds with one another. But the BSA is the best system that we’ve got right now.”

Casey’s perspective on crypto AML regulations as published in Cointelegraph article “How U.S. authorities are using old AML tools to crack down on crypto”