A recent news report revealed that the United States Financial Editor of the Financial Times, Brooke Masters, has raised questions concerning the method and approach which the United States Securities and Exchange Commission intends to use in regulating the cryptocurrency industry in the country.
While expressing herself in the Financial Times (FT) opinion piece, Masters pointed out the historical situation concerning financial regulation in America. She highlighted that the primary duty of the SEC is to protect investors from potential fraud and make sure there is enough transparency in financial transactions.
According to the report, history showed that the SEC has always concentrated their effort on regulating traditional financial tools such as bonds and stocks. However, the recent rapid growth of newer investment tools like crypto has caused disputes concerning which regulatory body has legal oversight over them.
The Financial Editor asserted that the SEC is now meddling with regulatory cases that involve crypto assets. In addition, the long-standing system of the leveraged loan market was put to the test in a recent hurt case. Generally, Masters regarded all these SEC’s activities as efforts by the commission to deliver its duty by protecting investors, given that the crypto market is highly volatile with a high probability of investors incurring massive losses.
Masters Urges The SEC To Avoid Breaching Its Regulatory Borders
However, while the executive commended the effort of the commission to protect investors, she cautioned it against breaching its regulatory boundaries. She pointed out that the legal framework that defines what forms securities is unclear, particularly when applied to cryptocurrencies and other newly formed asset classes.
In addition, Masters stated that according to the federal law established in 1933, securities are primarily bonds and stocks, excluding commodities and other relevant asset classes. However, the concept is further made confusing by the Howey test, which was based on a Supreme Court ruling about 8 decades ago, station g that securities have to with any investment contracts that include promoters promising investors a portion of profits generated later.
However, the rapid growth rate of the cryptocurrency industry has further spurred the SEC to take drastic actions, according to reports. Initially, the SEC made minimal contact with cases involving crypto assets. However, things changed as the commission gained more ground, launching lawsuits against significant platforms in the industry, including Coinbase, Binance.US, and Ripple.
In her speech, Brooke Masters referred to a law expert, Ann Lipton, who emphasized that rigid regulatory measures ought to make it easier for entities to detect their wrongdoings. Furthermore, another law expert, Lewis Cohen, claimed that categorizing crypto assets as securities could restrict them, as many crypto tokens like Ethereum do not meet up with requirements started by the SEC.
Congress Should Define The SEC’s Role in Regulating Crypto
Commenting on the leveraged loan market, Masters pointed out that the market has accumulated a whopping $1.4 trillion market cap. She stated that a court ruling in 1992 emphatically stated that leveraged loans are not securities. However, the market has tremendously grown, with investors intentionally disregarding the protections that bonds offer them and investing in leveraged loans instead.
In addition, the US Financial Editor emphasized the potential risk involved when regulators like the SEC expand their regulatory limitations. She also noted worries from the Treasury executives concerning the possible disruption of the corporate loan market. Also, she pointed out a recent New York federal court ruling that opposed the aggressive approach of the SEC toward regulating the crypto industry.
Furthermore, Masters urged the US Congress to formulate a precise rule that empowers the SEC to develop crypto regulations. And until that happens, she urged the commission to back the crypto industry enthusiasts by other means. She cited instances that many prominent asset managers plan to offer bitcoin ETFs (exchange-traded funds). She added that if the SEC endorses this investment, which is securities, it will help crypto industries to invest in digital assets under the oversight of the commission.
