Crypto Regulation in 2023: A Look at the SEC and CFTC
The regulatory landscape for cryptocurrency assets remains to be clarified and is subject to change. In the coming year, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) will likely continue shaping crypto regulation through enforcement actions.
SEC Chair Gary Gensler believes that the majority of crypto assets are securities and has encouraged the SEC staff to work with entrepreneurs to register and regulate these assets as securities where appropriate. However, it is unlikely that specific rules tailored to crypto assets will be proposed in 2023. Gensler's approach to regulating crypto is similar to his approach as chair of the CFTC. He leveraged the existing futures regulatory framework to adopt a regulatory framework for swaps.
The SEC has brought numerous enforcement actions since 2017 against those who failed to register offers and sales of crypto assets as securities. These actions have largely involved "utility tokens" sold during initial coin offerings. The defendants argued that the assets were not part of an investment contract because they had consumptive use. However, lower courts have rejected this argument, stating that a crypto asset may be sold as part of an investment contract even if it has consumptive use.
In recent years, crypto projects have increasingly emphasized decentralization and community ownership, issuing crypto assets as a way to distribute governance and control over a network, protocol, or organization to a broad community. These projects may argue under the Howey Test that their crypto assets are not securities because there is no "other" on which holders of the asset rely to earn profits. It is uncertain how the SEC will view this argument and whether it will bring enforcement actions against projects that take this approach.
The CFTC has traditionally taken a more permissive approach to crypto regulation, allowing for greater innovation in the space. In 2023, the CFTC is likely to continue to focus on protecting customers and ensuring market integrity, with a particular emphasis on anti-money laundering and combating the financing of terrorism. The CFTC may also consider extending its regulatory authority to cover additional types of crypto assets, such as stablecoins.
Overall, the regulation of crypto assets will continue to evolve in 2023, with the SEC and CFTC pushing the boundaries of their existing authorities through their enforcement actions. It is important for market participants to stay informed of these developments and ensure compliance with applicable regulations.
Continued Coverage of Crypto Regulation in 2023
In addition to the actions of the SEC and CFTC, other regulatory developments in the crypto space may impact the regulatory landscape in 2023. For example, the Financial Action Task Force (FATF), an intergovernmental organization that sets global standards for combating money laundering and terrorist financing, has issued guidance on regulating virtual assets and virtual asset service providers. Many countries have implemented these standards into their national laws, and it is possible that the FATF may update its guidance in 2023.
At the state level, some U.S. states have enacted cryptocurrency regulations, such as BitLicense in New York. Other states may follow suit in 2023, adding to the patchwork of state-specific regulations in the U.S.
International regulatory developments may also impact the regulatory landscape for crypto assets in 2023. For example, the European Union has issued draft regulations on markets in crypto assets, which are expected to come into effect in 2023. These regulations will establish a framework for the regulation of crypto assets and will apply to a wide range of activities, including the issuance, sale, and distribution of crypto assets.
Given the rapidly evolving nature of the crypto regulatory environment, it is important for market participants to stay informed of these developments and ensure compliance with applicable laws and regulations. It is also important for regulators to consider the potential impact of their actions on the growth and development of the crypto industry while also protecting consumers and promoting market integrity.