Regulators believe that better transparency will benefit crypto investors. In addition to encouraging fraud, the lack (or even absence) of regulation of crypto-assets provides them with no guarantee of protection. As with securities brokers, crypto platforms require regulations aimed at minimizing operational risk according to the SEC (US Securities and Exchange Commission).
More transparency to protect crypto investors
According to regulators, some platforms do not actually register investors’ interests on the blockchain. Others operate without sufficient funds to cover depositors. Faced with this, the SEC (the US federal regulator and supervisor of the financial market) is demanding more transparency from crypto platforms.
SEC Chairman Gary Gensler recalls the recent turbulence in the market. Some exchanges have had to freeze payouts and/or file for bankruptcy. These types of events, he says, are exactly why crypto firms should comply with the law. He’s talking about securities laws here. Because yes, the SEC considers cryptocurrencies as such.
The SEC has just proposed a rule change. The latter would require private equity and hedge funds to disclose more information about their investments/assets. This is to better monitor systemic risks. Gary Gensler says: With this final rule, regulators will gain transparency in an important sector of the financial market to better assess system-wide risks. “.
Crypto platforms are considered less responsible
Regulators condemn the “looseness” of crypto platforms. They also bemoan the hype around crypto-assets adding to regulatory distraction. They remind that the creators of Bitcoin promised that cryptocurrencies would solve the problems of trust. The new system was also supposed to reduce reliance on centralized intermediaries.
However, crypto-assets, they say, have just created new financial intermediaries that are less accountable than big banks. New cryptocurrency exchange and trading platforms are not subject to the standards imposed on securities market intermediaries. As a result, investor protection is weak. Allegations of fraud and conflict of interest are common.
There are no special rules that would ensure the protection of clients’ assets. There are no rules on how trades are executed. Crypto exchanges do not need to have systems to prevent fraud and manipulation. Nor are there rules to prevent or reduce conflicts of interest. And these exchanges can engage in proprietary trades against their clients.
While the SEC sees investor protection in transparency, the crypto enthusiast community laments the regulator’s attempts to interfere. The SEC, for its part, claims to have jurisdiction over crypto-assets that are considered securities. However, they recognize that many crypto-assets, including the most traded ones like bitcoin, are not securities. However, regulators argue that cryptocurrencies need a regulatory framework.
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I stumbled into the cryptosphere and witnessed the birth of a new era, DeFi. It’s all about economic freedom, transparency and opportunities available to all. This is a universe that deserves to be known.
