The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have signed a Crypto Oversight Pact, agreeing to work cooperatively in overseeing the evolving financial markets by signing a very important Memorandum of Understanding (MOU) for the regulation of Convergence of Financial Markets and Crypto Assets. The MOU creates a framework for agencies to cooperate and collaborate instead of trying to outdo one another.
What the SEC-CFTC Crypto Oversight Pact Entails
Through the crypto oversight pact/MOU, the SEC and CFTC commit to operating in a manner consistent with established principles of good government. This includes rejecting a ‘turf war’ mentality that would hamper cooperation among the two agencies and providing fair notice to market participants, as opposed to regulating by enforcement.
To facilitate further cooperation and coordination, the SEC and CFTC will establish a Joint Harmonization Initiative to enhance coordinated oversight/cooperation between the two agencies. The initiative will be co-led by the senior staff of each agency.
Some specific areas of joint cooperation/coordination identified in the MOU include:
- Developing joint rules for the regulatory requirements of products through the use of jointly interpreted definitions.
- Establishing a regulatory framework for crypto assets and other new technologies that is “fit for purpose.” (E.g., providing an appropriate regulatory scheme to crypto assets, technology innovations, and similar products).
- Reducing friction or impediments for dually registered exchanges, trading venues, and intermediaries.
- Coordinating cross-market examinations, risk assessments, and enforcement actions.
Additionally, the crypto oversight pact establishes the sharing of non-public information between the SEC and the CFTC to provide for coordinated examinations of “covered firms,” defined as firms registered with both agencies that are acting as both broker-dealers and futures commission merchants. The sharing of non-public information will be subject to strict controls and confidentiality.
The Importance of This MOU for the Crypto Space
According to Paul S. Atkins, Chairman of the SEC, the existence of “regulatory turf wars, duplicative agency registration and differing regulations between the SEC and CFTC has stalled innovation and driven market participants to other jurisdictions.” The MOU aims to reverse this by aligning regulatory approaches between both agencies.
Michael S. Selig, Chairman of the CFTC, is looking to “eliminate duplicative, burdensome regulations as well as the gaps in regulation, all for the benefit of the American people.” The MOU promotes use of a “minimum effective dose” regulatory strategy to improve and push innovation in a lawful manner while at the same time maintaining integrity of markets.
