By
Steve Muchoki
April 19th, 2024
Since digital currencies become an asset of national interest, there has been a broad debate on which of these two government agencies should be in charge of regulating the industry.
In order to accommodate the growth and popularity of the digital currency ecosystem, the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are jointly requesting a public opinion on their proposed reporting regimen for private hedge funds.
The call for comments on a proposed new Form PF wants the public to state whether and how it should make private funds report their exposure to cryptocurrencies. The reporting standards through Form PF were introduced after the global financial crisis of 2008. At the time, hedge funds were holdings assets that were largely unaccounted for in the form of Subprime mortgages, and this blew up in one of the most distressing histories in the financial world.
In a bid to engender more accountability from the private hedge funds operating in the US, the duo of the SEC and CFTC wants to include sections bordering on digital currencies in the Form PF which originally held no such clauses.
According to the call for comments, the questions that are being asked are fundamental, and include: Should reporting entities have to identify the specifics of their holdings by name or by type of digital asset, should there be different standards for fiat-redeemable stablecoins and central bank digital currencies, and should tokens that represent equity be another class.
The call for comments highlights how the comments should be structured, and avenues to get the comments to the appropriate quarters for review. The public has until October 11 to submit their comments should they have any.
Regulating the Crypto Space: Conflicting CFTC and SEC Roles
Since digital currencies become an asset of national interest, there has been a broad debate on which of these two government agencies should be in charge of regulating the industry.
The subject is particularly a very polarising one as many believe the SEC is best suited while another set believes the CFTC was created to handle the nascent asset class. The conflict is further heightened as there is no clear-cut distinction between what assets are securities and which are commodities.
The SEC has informally maintained that Bitcoin (BTC) is a commodity but has been very vocal about some other digital currencies like XRP and 9 altcoins listed by Coinbase Global Inc (NASDAQ: COIN) as securities. The designation of XRP as security has fueled a lawsuit between the regulator and blockchain payments firm, Ripple Labs Inc since December 2020.
The case between the SEC and Ripple is being followed keenly as it is bound to set a very good precedent for the broader industry. In the meantime, however, the CFTC and SEC have been able to work independently, and at times, together in bringing very stiff enforcement to the nascent but growing digital currency ecosystem.