With U.S. policymakers rethinking their approach to crypto regulation, the securities industry is calling on regulators to apply traditional principles to the fledgling digital asset sector.
In a joint submission to the U.S. Securities and Exchange Commission’s (SEC) new crypto task force, industry trade group the U.S. Securities Industry and Financial Markets Association (SIFMA) and the SIFMA Asset Management Group called on the SEC to adopt existing, well-established regulatory principles in the crypto sector rather than creating a novel regulatory framework.
It also stressed that the crypto sector and firms should face regulatory outcomes that are “broadly equivalent” to traditional assets and markets; that existing investor protections should be extended to crypto markets; and it advocated for regulators to take a “technology-neutral” approach to oversight.
Among other things, the industry groups said specifically that “the determination of whether a digital asset is a security should be based upon the intrinsic economic characteristics of an asset or transaction rather than through a technology-driven approach that depends on mutable factors extrinsic to the asset or transaction.”
They also called on the SEC to lean on existing case law to make those determinations, bolstered by crypto-specific guidance where needed, and they expressed support for the SEC’s efforts to provide guidance on cryptoassets that aren’t considered securities.
Similarly, they said that the traditional principles on custody and the role of custodians — including the separation of financial activities, the segregation of client assets, and ensuring proper controls — should apply to the crypto sector.
“The SEC should neither develop a new custody framework solely for digital assets nor proceed with its unworkable 2023 safeguarding proposal,” it said.
Finally, the letter also said the SEC should introduce targeted reforms to promote the growth of tokenized securities markets, including efforts to clarify how existing requirements — in areas such as recordkeeping, control, clearing and settlement — should apply to tokenized securities.
Specifically, it said the SEC should modernize its rules for transfer agents to address the role of blockchains and smart contracts. And it warned against any effort to further shorten the settlement cycle to T+0 settlement “given the significant risks, costs, and additional complexity it would create after the recent successful transition … to T+1 settlement …”