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 following a recent spat with the Securities and Exchange Commission.“To avoid fragmented and inconsistent regulatory oversight of these unique and concurrent innovations, responsibility over digital assets markets should be assigned to a single federal regulator,” Coinbase said, noting that the SEC, the 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 new 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 “even though they have dozens of tokens that may be securities”, a characterisation that the company disputes.Chief executive Brian Armstrong also in September accused the regulator of being “sketchy” and opaque after 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 later shelved the plans. In its proposal on Thursday, Coinbase argued that securities laws implemented in the 1930s struggle to fit current digital markets, and as a result, risk stifling innovation and driving crypto entrepreneurs offshore. The document, seen by the Financial Times, was first reported by The Wall Street Journal.While Gensler has said that many crypto products could be defined as securities, he has stopped short of issuing further guidance, saying existing rules are sufficiently clear. In recent months he has urged crypto platforms to contact the SEC and discuss whether they should register with the agency.
The regulatory debate revolves in part around whether digital products are “investment contracts”, and therefore considered securities under federal law. 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 common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”.“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 decentralised and open-source nature of digital assets means that current disclosure requirements in securities laws 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 the disclosure requirements of public companies would likely mislead the public about what is actually material information about a digital asset.”The SEC did not immediately respond to requests for comment.