Speaking at a recent event, the commissioner of the Commodity Futures Trading Commission (CFTC), urged Congress to direct the regulators to cooperate on the matters of crypto legislation and regulation.
Summer Mersinger, CFTC commissioner was attending the DC Blockchain Summit, where she highlighted the importance of interference from Congress to ensure cooperation with the CFTC when drafting crypto legislation. The DC Blockchain Summit is where government and business leaders come together to discuss the most pressing issues that will drive innovation, economic growth, and blockchain and digital asset adoption.
Mersinger specifically outlines that lawmakers should order the Securities and Exchange Commission (SEC) to cooperate with the CFTC. She added that the agencies were unlikely to agree on legislation unless Congress mandated cooperation. As she said:
Do I think that’s going to happen on its own? No. I think we would probably need some sort of legislative mandate to force us to sit down.
Alongside Mersinger was Kristin Johnson, fellow commissioner at the CFTC at the discussion titled “Forward Thinking: Policies Shaping The Digital Asset Markets, Act I.”
When questioned on how crypto intermediaries are defined according to the regulator, Johnson said she supported new cybersecurity rules and requirements for customer funds to be kept separate.
Notably, Mersinger’s statements come during intense regulatory scrutiny on the crypto industry following the collapses of several high-profile crypto-oriented entities. The collapses include the collapse of the crypto exchange FTX last year and, the latest depegging of a major U.S. stablecoin. All of this has urged the regulators to speedily advance their attempts to regulate the industry.
Recently, Maxine Waters, chair of the House Financial Services Committee, swore to advance stablecoin legislation in the US. This renewed urgency came after USDC depegged following the collapse of Silicon Valley Bank.
Commissioner Mersinger’s request for cooperative lawmaking comes at a time when the crypto regulatory landscape in the US is at a very sensitive stage. More often than not, the SEC and CFTC have been found conflicting in their views over what cryptocurrencies or digital assets constitute commodities or security. Hence, it is very important for the regulators to cooperate with each other so that there is more clarity to the crypto bills awaiting passage in Congress.
The Digital Commodity Exchange Act of 2022 and the Digital Consumer Commodities Protection Act of 2022 emphasize the CFTC’s role in digital asset spot markets. According to the Digital Commodity Exchange Act of 2022, the SEC has jurisdiction over digital assets representing an ownership stake. However, assets that do not “convey rights and obligations typically associated with a security” should be considered a commodity.
Sticking to this definition would bring such assets under the CFTC’s authority. Nonetheless, the SEC has to explain its understanding of the term “ownership stake” and, in doing so, it would also bring better clarity to the CFTC’s authority.
Simultaneously, the Lummis-Gillibrand Responsible Financial Innovation Act mandates crypto exchanges to register with the CFTC. This act places assets that provide owners with a financial interest in a business entity under the SEC’s jurisdiction. However, this bill fails to explain what constitutes a security or a commodity, to which the SEC could contribute its insights.
It is not the first time when Congress has been urged to interfere. In February, Kristin Smith, CEO of the Blockchain Association, said that Congress needs to take control of crypto legislation and make the process more “open.” Smith also targeted the regulators for carrying an enforcement approach that would inhibit innovation.
In the past weeks, the SEC has been bashed for having an enforcement-related approach to regulation. In February, the regulator issued enforcement actions against crypto projects for offering unregistered securities without providing ample guidelines on how projects can comply with securities laws.
The regulator also sent a Wells Notice to Paxos for issuing BUSD, the third largest stablecoin. Paxos publicly acknowledged the notice but categorically disagreed with the regulator and said that it was having talks. SEC Commissioner Hester Peirce has also criticized the agency for having such an approach.