One of the U.S.’s top regulators criticized her own agency for fining crypto companies for violating rules without making clear what those rules are.
Commissioner Dawn Stump of the Commodity Futures Trading Commission (CFTC) said in an interview published in the Financial Times Wednesday (Dec. 8) that her agency should stop “bringing enforcement actions without giving [their targets] the tools they need to be compliant.”
More broadly, the Trump appointee criticized U.S. regulatory agencies for “regulating through enforcement,” saying, “I think there’s a lot of that happening now.”
Those criticisms extend to Congress for failing to enact legislation setting those rules rather than forcing the agencies and companies to twist to fit regulations designed many decades before cryptocurrencies existed.
Republicans Like Pennsylvania Rep. Pat Toomey have been saying much the same thing. In a September hearing by the House Financial Services Committee, said that “we need to have clarity on this,” adding we certainly shouldn’t be taking enforcement action against somebody without having first provided that clarity.”
The cryptocurrency industry has long criticized regulators including the CFTC and especially the Securities and Exchange Commission (SEC) for failing to provide clear guidance to firms issuing or trading in digital assets. That is expected to be an important topic when six top crypto executives testify before the House Financial Services Committee Wednesday.
See: Crypto Experts Next Congressional Close-Up Is Coming; Here’s What to Expect
Kraked Unfairly
Stump singled out a $1.25 million fine levied on the San Francisco-based Kraken exchange in September for failing to register as a futures broker.
Read: Bitcoin Exchange Kraken Pays $1.25M to Settle CFTC Illegal Trading Charges
The agency said when Kraken offered “margined, leveraged or financed digital asset trading to U.S. customers” between June 2020 and July 2021, it broke the law because it was not a designated contract market, and had failed to register as a futures commission merchant (FCM).
“We’ve never designed a regulation that explains to these entities how they could achieve that registration,” Stump told the Financial Times. “I would have preferred that we would not have brought those types of cases until we had better defined how they might achieve compliance.”
At the time, she noted that it was not clear how Kraken could have registered as an FCM. “Many of the Commission’s rules governing its regulation of traditional FCMs do not fit Kraken’s role as an exchange,” she said.
Noting that it had “sought clarity” from the CFTC when launching its margined trading products, Kraken said that the “enforcement action comes in the absence of a clearly articulated path to offering margin spot products to retail investors.”
An Aggressive SEC
For years, the SEC has taken a leading role in going after crypto firms. Under Trump appointee Jay Clayton it cracked down aggressively on initial coin offerings (ICOs), effectively arguing that all cryptocurrencies (except bitcoin and ether) are securities and firms creating and selling them must register with the agency.
Learn more: For SEC, Subpoenas No Mere ‘Token Interest’ In ICOs
The SEC has been aggressive under Clayton’s successor, Gary Gensler, appointed by President Joe Biden. A former cryptocurrency and blockchain professor at MIT, Gensler has continued the policy of labeling all cryptocurrencies, pursuing a $1.8 billion lawsuit against International payments firm Ripple over its sale of XRP.
Read more: Ripple CEO Confident SEC Lawsuit Moving in Right Direction
More recently, the agency announced an investigation into cryptocurrency exchange BlockFi for offering interest to customers who lend out their crypto, and pressured Coinbase into cancelling plans to create a lending arm, Crypto Lend.
Also read: Coinbase Kills Lend Product Amid SEC Ire
That led Coinbase CEO Brian Armstrong to call for the creation of a new agency to oversee the cryptocurrency industry, complaining that the SEC was the only regulatory agency that refused to meet with it.
Related news: Coinbase Asks Congress to Create Crypto-Regulator
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