Timothy Massad, a former chairman of the Commodity Futures Trading Commission (CFTC), and Jay Clayton, a former chairman of the Securities and Exchange Commission (SEC), said in a Wall Street Journal opinion piece that although they support enforcement in the digital asset industry, they believe that lawsuits alone are not the solution to regulating the industry. Massad and Clayton proposed that the CFTC and SEC work together to put forward basic protection standards.
"As two former markets regulators—one under President Obama and one under President Trump—we continue to support the rigorous enforcement of our time-tested securities and derivatives laws. But we also believe that these enforcement actions, in themselves, are unlikely to bring about a significant improvement in investor protection and market integrity quickly," Massad and Clayton wrote in the opinion piece.
Massad, who headed the CFTC from 2014 to 2017, and Clayton, who served as chairman of the SEC from 2017 to 2020, noted in the opinion piece that the SEC has recently sued multiple crypto exchanges including Binance and Coinbase, and the CFTC recently sued Binance as well. The former regulators said that while those lawsuits could eventually have "dramatic consequences" for the U.S. digital asset industry, the litigation will take time and will likely not answer key questions facing the industry, such as how tokens that are not securities should be overseen by the federal government.
"In addition, these lawsuits are unlikely to address questions of whether existing laws need to be adjusted to deal with particular features of digital tokens," the two former regulators said. They noted that federal judges should not be expected to answer "the broad and technical questions of market structure and operation in the context of a case that hinges on the classification of a particular token." To address these questions, Massad and Clayton said that federal agencies need to do more than litigate.
The former regulators suggested that the SEC and CFTC "jointly develop basic investor and market protection standards for trading platforms as they exist today." They wrote that the two agencies could develop the standards themselves or utilize a self-regulatory organization. "Having Congress mandate this approach would be even better," Massad and Clayton wrote. "The standards could easily be based on existing rules and, while rule-making takes time, it will get us to a much improved state of affairs faster."
Massad and Clayton outlined several "advantages" to their suggested approach, including that it would "cut through complexity" by skipping over the debate on how to classify each token, instead implementing basic requirements for all trading platforms. Another advantage, the former regulators said, is that it "addresses the market as it is used today by millions of Americans," rather than resulting in a "bifurcation" of separate trading platforms for securities and commodities. Massad and Clayton added that if the standards are developed by a self-regulatory organization, the cost would fall on industry members rather than taxpayers. The two wrote that another advantage of this approach is that it is "incremental," allowing the quick establishment of foundational standards while building towards the ultimate goal of comprehensive regulations.
"The debate about the long-term value and utility of crypto will continue," Massad and Clayton wrote. "Better regulation shouldn’t turn on that debate, nor on partisan lines. This is a pragmatic path forward that crypto skeptics and enthusiasts, financial regulators and those on both sides of the political aisle should support."
