SEC Testifies On Plans to Regulate Cryptocurrencies

Last week the SEC acknowledged publicly that it does not have jurisdiction on cryptocurrency trading markets. Its role instead is likely in consumer education and oversight of new coin offerings.

SEC Chairman Jay Clayton made the remarks during testimony to Congress on February 6.

Because they operate outside the normal banking system, cryptocurrency transactions happen largely without any equivalent to the ways the SEC provides oversight over the big banks. Clayton also emphasized there are no federal disclosure rules covering transactions using cryptocurrencies. At the same time, he answered specifically that it was not clear the SEC needed to expand its jurisdiction to cover virtual currency markets.

Where the SEC likely could step in now involves new crypto coin offerings, also known as ICOs (for “Initial Coin Offerings”). According to Clayton, ICOs have a number of similarities to Initial Public Offerings (IPOs) of stock. In both cases they involve companies attempting to raise capital, with the main difference being the vehicle by which they do that. The SEC does have regulatory responsibility for IPO oversight, which includes full financial disclosures, risk information, and formal registration of new IPOs with the SEC prior to making such an offering.

In view of that, Clayton suggested that cryptocurrency companies involved with ICOs should be registering with the SEC in advance of such sales. So far, he said, none have registered.

Despite his comment about there not being a need for the SEC to take on cryptocurrency trading as a responsibility, Clayton did say he thought Congressional lawmakers needed to formalize the rules involving how cryptocurrencies need to be regulated in the U.S. and which agencies should be responsible for it. “I don’t think the gatekeepers that we rely on to assist us in making sure our securities laws are followed have done their job,” he said.