Two major problems that the cryptocurrencies are facing, Chairman of CFTC Heath Tarbert said
Speaking at Harvard Kennedy School at a lecture series covering financial regulations, Heath Tarbert, Chairman of the U.S. Commodity Futures Trading Commission, addressed the agency’s current position on cryptocurrencies.
There were two major problems that Mr. Tarbert stated that is has existed so far.
The first issue is anti-money laundering and counter-terrorist financing. These are things that could if done wrongly, subvert AML/CTF.
Two Friday ago, Mr. Tarbert issued a statement that was joint FinCEN, the SEC and the CFTC. He said if you were one of his regulated entities, and even if you were not dealing with products that we regulated, but you were dealing with digital assets, cryptocurrencies, etc., you had got to apply the anti-money laundering laws, the Patriot Act, etc., to those.
The second issue is investor protection. He said these ICOs (Initial Coin Offerings) that people are issuing these so-called ‘cryptocurrencies, assets’ and they may be nothing more than fraudulent schemes. While there are no specific principles in place to guide the industry, Tarbert said they are also thinking through issues related to margin trading, the custody of digital assets and Mark Zuckerberg’s crypto project Libra.
He stated there is the issue of a stable value coin. If an asset is backed by a commodity and it likely would be under jurisdiction, but there is a whole host of questions, not only because you have got the backing issue and the potential run risk and other things that we were starting to talk about the G7 report, but that particular digital asset was the potential scope for it. He also added there was the possibility of a global stablecoin for the first time, and that raised a whole host of additional issues like monetary policy, systemic risk, etc.
Harbert also explained that “jurisdiction” is how the agency can target an organization outside of its jurisdiction in order to protect markets. If it’s a commodity, it falls within the CFTC’s jurisdiction. If it is a derivative of a commodity, then they regulate it and also have enforcement authority. If it’s just a commodity, they don’t have, necessarily, regulatory authority but they do have enforcement authority for fraud and manipulation. Tarbert also spoke about how the definition of a commodity is very broad, claiming that, “movie tickets are carved out of the definition of a commodity.”
Because if you had fraud in a commodities market that was not on a futures exchange, it could negligibly impact the stability of the futures markets… He added that, in theory, the CFTC could go after cryptocurrency exchanges which are not registered with them in cases of fraud and manipulation, despite the exchange not necessarily being required to have registered with them.
He boiled down the difference between the two to essentially how the product being invested in determines its value, whether the asset is a store of value in and of itself, or if its value is determined based on the efforts of others. He added, “It’s much more complicated than that, but that’s the big picture.”
In short, Heath Tarbert said he and his colleagues are still trying to understand the space, while also identifying two of the industries major issues.