The Biden administration has so far failed to deliver on expectations that new crypto-savvy leadership of federal financial regulators would bring regulatory clarity, says lawyer.
The Trump era leaders of the U.S’ financial regulators closed their tenure with two controversial acts that left the U.S. crypto industry in limbo.
On his last day in office, Jay Clayton, former chairman of the Securities and Exchange Commission (SEC), filed a court action against Ripple, claiming that the company’s digital token is in fact not a currency but a security.
The landmark case will set a precedent for crypto-asset regulation, as the court will need to determine whether the digital asset falls under the definition of an investment in accordance with a 1946 Supreme Court case law.
By contrast, the crypto industry, including Ripple’s founders, hailed President Joe Biden’s nomination of Gary Gensler as the new chairman of the SEC.
As former chairman of the Commodity Futures Trading Commission (CFTC), Gensler earned a reputation as a tough regulator, but he is also considered crypto-savvy due to his experience of teaching blockchain and fintech at MIT Sloan School of Management.
The new administration also tapped Janet Yellen as Secretary of Treasury, who previously stated that the U.S. needs a regulatory framework that both fosters innovation and addresses concerns about the illicit use of digital currencies.
However, despite these high initial expectations, the SEC has still not provided the clarity the market needs around what is a security versus what is a currency and how these definitions apply, Steven Gatti, a partner at Clifford Chance, said on the London Perspectives Series organized by the law firm, on Tuesday.
“There is a lot going on, we are only three or four months into this administration, but right now the signals are that the breaks are a little bit put on,” said Gatti.
“The market has been waiting anxiously for that [clarity],” he added.
“One of the major developments the market is looking at is the SEC’s consideration of Bitcoin ETFs (exchange-traded funds).”
“Many people have been hoping that with chairman Gensler coming in, given his background in technology and regulation … we may see some movement there,” Gatti said.
“However, in a recent speech he gave … he expressed skepticism about the SEC’s ability to monitor markets in cryptocurrencies or other regulators to do so,” he added.
“I think that may stall the approval of Bitcoin ETFs.”
Another last-minute Trump-era proposal affecting crypto firms was put forward by the Financial Crimes Enforcement Network (FinCEN), an independent bureau of the Department of the Treasury.
A proposed rule, published last December, would require money services businesses (MSBs) to collect, submit and keep records of customers in relation to transactions above $10,000 that involve convertible virtual currency (CVC) or digital assets with legal tender status (LTDA) held in unhosted wallets.
It was widely reported that rushed rulemaking, including a brief consultation period run over the Christmas holiday, was driven by Trump-era Secretary of the Treasury Steven Mnuchin.
Touching on ongoing initiatives related to digital identity, Gatti noted that any action aimed to introduce such a register would face stiff resistance from U.S. citizens.
“I cannot see any of that moving forward here any time soon.”
“One of the major issues with the stimulus using accounts was that it is going to create some kind of national identity and so I think we will trail the world in that area,” he noted.