CFTC Commissioner Brian Quintenz advocated for the creation of a self-regulatory organization (“SRO”) focused on the oversight of cryptocurrency platforms.
In remarks delivered at the DC Blockchain Summit, Mr. Quintenz addressed the issue of the proliferation of cryptocurrencies and initial coin offerings. He described various oversight and regulatory challenges including jurisdictional limitations that restrict CFTC authority over spot markets.
Mr. Quintenz advocated for the creation of a private, independent organization aimed at developing standards and policing cryptocurrency platforms. Citing the success of SROs such as FINRA, the NFA and the MSRB, Mr. Quintenz suggested that a similar organization could be established in order to (i) set best practices and industry standards for cryptocurrency platforms and (ii) eventually enforce rules and supervise members for compliance. He pointed to independent bodies that had been established in other countries, and said that creating such an organization could help to “create uniform standards for these trading platforms, reduce the possibility of regulatory arbitrage, and avoid duplicative regulation.”
Mr. Quintenz also highlighted what he sees as several advantages over federal regulators, including that SROs: (i) do not require new legislation in order to quickly establish oversight, (ii) are funded by members as opposed to the federal government, and (iii) have the ability to expediently create or amend rules. He said that the IOSCO Principles for Self-Regulation could be used as a framework to establish a self-regulatory group for cryptocurrency. While SROs must be subject to the oversight of a government regulator, Mr. Quintenz said, an “SRO-like” entity could begin to establish a framework for standard-setting as Congress considers potential federal action.
Lofchie Comment: While there is a growing consensus that there should be a federal system of regulation of cryptocurrencies and ICOs, it seems unlikely that the development of such a system can be accelerated by reliance on a system of “self-regulation.” Such systems succeed because members interact extensively with each other and share a mutual interest in the development of the industry and the product as a whole.
These are not the characteristics of the crypto industry. To a good extent, one may even question whether crypto firms are issuing a common product. Further, Mr. Quintenz may overestimate the degree to which the U.S. self-regulatory organizations are genuinely self-regulatory; in fact, at least on the securities side, SROs are very much under the authority of the SEC, and function less as “self-regulatory” organizations than as extensions of the government.