Crypto CEOs Warn Congress on Driving Legitimate Activity Offshore
Brian Brooks, former acting comptroller of the currency and now chief executive of Bitfury Group, which provides infrastructure for the cryptocurrency ecosystem, wanted that US regulatory decisions have driven legitimate activity offshore in ways that harm US investors, innovators, and workers.
Brooks is one of six cryptocurrency executives testifying before the US House Committee on Financial Services on 8 December.
#Today – the full Committee, chaired by @RepMaxineWaters, is holding a hearing entitled, "Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States."
— U.S. House Committee on Financial Services (@FSCDems) December 8, 2021
Brooks said in his prepared statement: “Can anyone explain, for example, why Fidelity Investments, one of America’s best known investment advisors, had to go to Canada to offer a bitcoin ETF? Or why physically settled crypto ETFs are safe and legal in Germany, Brazil, and Singapore, but not in the United States?”
He also asked why crypto exchanges, stablecoin issuers and others can receive e-money licenses to access the payments system in the United Kingdom, but that is reserved exclusively for chartered banks n the United States, which increases costs.
Brooks’ first recommendation was that the national policy agenda should assess whether it makes more sense to continue to keep crypto activities largely out of the regulated financial system, or to bring them inside the system precisely so they can be supervised and operated with appropriate levels of risk management.
“For example, is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins?” added Brooks. “Or does it make sense to bring enforcement actions challenging certain cryptoassets as unregistered securities, but then fail to allow those assets to be registered and trade on a national securities exchange or alternative trading system that is supervised by FINRA and the SEC ?”
Brooks also highlighted that when he was a regulator, the OCC issued almost $1bn in civil money penalties against banks and bank executives showing that the present financial system has plenty of examples of risks and costs and various forms of unsafe and unsound conduct.
“Shouldn’t we take seriously the possibility that algorithms and opensource software that take a measure of human error, greed, negligence, fraud, and bias out of the system might make the system better on net even if there are some new risks that need to be examined and understood ?” he added.
Alesia Haas, chief executive of Coinbase, Inc (U.S. Subsidiary) and chief financial officer of Coinbase Global, said in her prepared testimony that the US digital asset exchange supported 158 assets for custody and 103 assets for trading, including a stablecoin USD Coin as at September 30.
Join us tomorrow with @FSCDems to discuss digital assets and the transformational potential of Web3 and the cryptoeconomy.
— Coinbase (@coinbase) December 7, 2021
She said: “Every asset listed on the Coinbase platform is subject to a rigorous legal, compliance, and security review. As a founding member of the Crypto Ratings Council, Coinbase has led an industry effort to create consistent guidelines for evaluating the suitability of each token for trading.”
Haas continued that Coinbase was among the first regulated digital asset exchanges in the United States, is federally registered as a money services business with FinCEN, licensed as a money transmitter in 42 states, and hold a “BitLicense” from the New York Department of Financial Services. She added that crypto is a new asset class that requires thoughtful consideration to address challenges, including helping individuals and businesses comply with U.S. tax law, combating illicit finance, and eliminating regulatory confusion.
Coinbase believes that digital assets trade in markets that are fundamentally different from traditional financial markets and, therefore, existing regulatory regimes often do not accommodate this new technology.
“We believe the government should regulate digital assets under a new framework,” she added. “Our existing regulatory system does not work effectively for the open, decentralized networks that crypto has created. Financial regulation was built around a series of financial intermediaries—transfer agents, clearing houses and traditional brokers—which are not necessary to effectuate crypto transactions.”
In addition responsibility for this new framework should be assigned to a single federal regulator, a new registration process established for marketplaces for digital asset and a dedicated self-regulatory organization (SRO) should be established to strengthen the oversight regime and provide more-granular supervision of such marketplaces.
“Together, the regulator and the SRO can set new and well-informed rules that work for everyone in the digital asset ecosystem,” she said. “This of course does not mean an entirely new regulatory agency is required. If it deems appropriate, Congress can identify an existing regulatory agency for this role and spare other agencies the inefficiencies and inconsistencies that come when multiple agencies seek to regulate the same aspects of the same industry at the same time”
Sam Bankman-Fried, co-founder and chief executive of FTX, said in his prepared testimony that the company would prefer to operate under one, federal, unified regulatory regime. He continued that policymakers should take a principles-based approach and use the existing policy goals that apply to traditional capital and derivatives markets.
I’m honored to be testifying before the House Financial Services Committee today about the future of the digital asset industry, along with colleagues from Coinbase, Circle, Paxos, Bitfury, and Stellar.https://t.co/ODB285Yuvq
— SBF (@SBF_FTX) December 8, 2021
He said: “A successful policy framework would allow crypto platforms to offer both spot and derivatives trading on crypto assets under one unified system, with one rule book and one technology platform to manage risks related to all trading activity in customer accounts.”
FTX proposed a scheme where a crypto-platform operator could opt into a program of joint supervision by the CFTC and SEC, with one of the two market regulators serving as the primary regulator, and the other as the secondary regulator.
The FTX group of companies was founded in 2019 and began as an exchange or marketplace for the trading of crypto assets. In the U.S., the company is a federally regulated exchange operator with licenses from the Department of Treasury (as a money services business) and the U.S. Commodity Futures Trading Commission.
Bankman-Fried said: “To maintain U.S. leadership, policy makers will need to continue leveraging the best features of existing policy, but also accommodate the best features of the digital-asset industry, which we believe are empowering to the consumer and risk-reducing to markets.”
FTX believes that stablecoins are one of the most important payment innovations to come from the digital-asset industry, and said users rely heavily on their use for payment and settlement of transactions. For example, a stablecoin, STBC could a blockchain-based asset issued by a private company, a central bank, or a decentralized protocol where one token can be exchanged for one US dollar.
Stablecoin transfers have nearly instantaneous settlement, and settlement can be easily confirmed by both counterparties by viewing the deposit into a wallet on a public blockchain.
“This committee should understand that FTX believes that without banking-type federal supervision of stablecoin issuers today, FTX allows their use on our platforms and indeed leverages them for our own corporate money transfer because we believe they are risk reducing,” he added. “FTX, therefore, is skeptical that bank-like supervision for all stablecoin issuers is the best solution for consumers.”
In addition FTX believes that the continued use of stablecoins with appropriate standardized safeguards will protect the hegemony of the U.S. dollar as the world’s reserve currency, not threaten it.
Jeremy Allaire, co-founder, chairman and chief executive of Circle Internet Financial, the sole issuer of stablecoin USD Coin, or USDC, said in his statement that Circle has prioritized building, designing and guarding the prudential standards for USDC. The stablecoin now stands at over $40 billion in circulation and has powered more than $1 trillion in on-chain transactions, inside of and conforming with prevailing U.S. regulatory standards that apply to leading fintech and payments firms.
Allaire said: “Stablecoins and internet-native capital markets are not too big to fail, but they are now too big to ignore,” he added. “We wholeheartedly support this effort, and believe that there can be very strong non-partisan support for national licensing and Federal supervision of this highly strategic financial market infrastructure.”
Circle is pursuing a full national banking charter from the Office of the Comptroller of the Currency (OCC).
Charles Cascarilla, chief executive and co-Founder of Paxos, a regulated financial institution and a blockchain infrastructure platform for institutions, said in his statement that with the right policy approach, digital assets and their related blockchain technologies can create a more efficient, secure and innovative financial system — and by extension, a more inclusive and equitable global economy.
Today, Paxos CEO Charles Cascarilla with testify to @FSCDems on the importance of #digitalAssets and the future of #crypto and #blockchain in the US. Read his testimony in advance. https://t.co/VQLqyhSND6
— Paxos (@PaxosGlobal) December 8, 2021
“The uncertain state of digital asset regulation is hampering the industry’s dynamism,” he added. “The solution is not to shoehorn digital asset operations into a regulatory system designed for earlier generations of financial assets.”
He warned that if the federal government stifles the adoption of digital assets, then issuers, talent and capital will flee to more welcoming jurisdictions.
“The advantages of well-regulated stablecoins, in particular, are so great that it’s only a matter of time before they become the primary means to transfer large amounts of funds between consumers, companies, financial institutions and even central banks,” Cascarilla added. “Without reputable, U.S.-dollar backed stablecoins or a central bank digital currency and the infrastructure to support them, it will become less viable for other countries and multinational companies to continue using the U.S. dollar as the global reserve currency.”
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