Professor Yuliya Guseva, director of the Fintech and Blockchain Research Program at the Rutgers Center for Corporate Law and Governance, recently highlighted the need for more comprehensive regulation in the digital asset industry. Speaking to Federal Newswire, she noted that while the cases involving cryptocurrency exchanges Binance and FTX differ, they both underscore this necessity. Guseva said the need for regulations will become more pronounced if crypto adoption continues to grow.
"Despite their differences, both cases clearly point toward a crucial policy need for better and tailored regulation and orderly self-regulation under the jurisdiction of the SEC, the CFTC, or both," said Guseva. "Without ex ante regulatory frameworks and strong self-regulation, U.S. regulators will be forced to continue operating through ex post enforcement, which may be too little and too late for many investors. If digital asset trading continues and asset tokenization takes off, regulatory modifications will become progressively more and more important."
Guseva's academic and policy research spans a variety of subjects including securities law, financial regulation, and digital innovation, as per the Rutgers Law School website. She coauthored the second edition of "Regulation of Cryptoassets," published in 2022, and previously served as vice dean of Rutgers Law School.
In November 2023, Binance, the world's largest crypto exchange, reached a settlement with multiple U.S. government agencies. According to a U.S. Department of Justice (DOJ) press release, Binance agreed to pay $4.3 billion in penalties to resolve historical compliance issues. As part of this resolution, Changpeng Zhao (CZ), CEO and co-founder of Binance, agreed to step down from his role and plead guilty to failing to maintain an effective anti-money laundering (AML) program - a violation of the Bank Secrecy Act. Furthermore, Binance committed to retaining a third-party compliance monitor for three years. Treasury Secretary Janet Yellen described this settlement and monitorship as "historic" and "a milestone for the virtual currency industry."
FTX, another cryptocurrency exchange, collapsed and filed for bankruptcy in November 2022 after it was revealed that its founder and former CEO Sam Bankman-Fried had misused approximately $8 billion of investor and customer funds, according to Investopedia. Bankman-Fried was convicted last year on multiple criminal charges including wire fraud and money laundering. The former crypto executive was accused of deceiving investors and customers, falsifying financial statements, and diverting FTX deposits towards luxury real estate, yachts, investments, and political donations.
According to CNBC, while the U.S. government has taken legal action against multiple major crypto companies, other jurisdictions have progressed with implementing regulations for the industry. Many of these new crypto laws carry potentially severe penalties. However, the U.S. remains the only country that has taken enforcement actions against leading digital asset companies. "Other countries have a comprehensive regulatory framework in place. We don’t," said Renato Mariotti, a former Justice Department prosecutor. "As a result, issues that should be determined by legislation or regulation are instead litigated."
U.S. Senator Cynthia Lummis (R-Wyo.) is among lawmakers who have criticized U.S. agencies' "regulation by enforcement" approach to the crypto industry. She warned that failure to implement comprehensive regulations will lead to innovation moving offshore. "The SEC has failed to provide a path for digital asset exchanges to register, and even worse has failed to provide adequate legal guidance on what differentiates a security from a commodity," Lummis said in a post on X.
