Coinbase has called for the creation of a single dedicated body to regulate digital assets, arguing that the current oversight is too fragmented and that the US s century-old securities laws are ill-suited to today's cryptocurrency markets.
In a policy document shared with Congress, the largest US cryptocurrency exchange urged lawmakers to separate the oversight of digital asset markets from other financial markets as it goes on the offensive in Capitol Hill after a recent spat with the Securities and Exchange Commission.
To avoid fragmented and inconsistent regulatory oversight of these unique and concurrent innovations, regulator responsibility over digital assets markets should be assigned to a single federal regulator, Coinbase said, noting that the SEC, Commodity Futures Trading Commission and certain state regimes all oversee parts of the crypto industry.
The company also proposed creating an additional Self-Regulatory Organisation, or SRO, to support oversight under this innovative digital asset regulatory regime mirroring traditional financial markets.
The proposals come as tensions between Coinbase and the SEC have escalated in recent months. Gary Gensler, SEC chair, said in September that Coinbase had not registered with the regulator although they do have dozens of tokens that could be securities a characterisation that the company disputes.
Chief executive Brian Armstrong also accused the regulator of being sketchy and opaque in September when it threatened to sue the company if it launched its Lend product which would have paid interest on staked cryptocurrencies without registering with the regulator. Coinbase argued its proposal on Thursday that securities laws implemented in the 1930's struggle to fit modern digital markets and as a result risk driving innovation offshore and stifling crypto entrepreneurs. The document, first reported by The Wall Street Journal, was first reported by the Financial Times.
Although Gensler has said that many crypto products can be considered as security, he has stopped short of issuing further guidance, saying existing rules are sufficiently clear. In recent months he has urged crypto firms to contact the SEC and discuss whether they should register with the agency.
The federal debate revolves in part around whether digital products are investment contracts and therefore considered securities under government laws. In accordance with what is known as the Howey test, the Supreme Court has ruled that an investment contract exists when a person invests his money in a third enterprise and is led to expect profits solely from the efforts of the promoter or promoter While the Howey test has an important role in defining what is a security, applying it to digital assets has even led the SEC to be unclear and inconsistent, Coinbase said in its proposal.
The company also argued that the open nature of digital assets means that current disclosure requirements in securities law are not fit for purpose.
Every holder of a digital asset can examine for themselves the functionality and governance structure of the asset, it said. Applying disclosure requirements of digital companies would likely mislead the public about what is material information about a material asset? The SEC did not immediately respond to requests for comment.