Crypto Regulation Weekly: SEC Targets Coinbase as CFTC Prepares to Take Lead

Reports that the U.S. Securities and Exchange Commission will sue publicly listed crypto exchange Coinbase for allegedly selling unregistered securities to the general public signal that the agency is making its strongest push yet to rein in the cryptocurrency industry under its jurisdiction.

Long criticized for regulation by enforcement, the SEC is apparently trying to set a precedent in which a court declares cryptocurrencies to be securities. A new lawsuit would piggyback on the first prosecution of alleged insider trading in the crypto industry by the Department of Justice, whose case requires the digital assets to be recognized as securities.

Speaking of the civil suit the agency launched alongside the criminal charges, SEC head of enforcement Gurbir Grewal, said it is “not concerned with labels, but rather the economic realities of an offering. In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading …  Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved.”

See more: Cathie Woods’ Ark Jumps Ship as Coinbase’s SEC Woes Threaten Crypto Payments

The SEC’s response is critical to the payments industry, as paying with a security creates a potential capital gain. Meaning that buying even a Coke would require IRS reporting and the payment of taxes of up to 20% — which makes it very difficult to use cryptocurrencies for small payments.

Moves are afoot in Congress to deal with this by exempting payments below a certain level — $200 or $50 are the current contenders. In either case, the ceiling of exempted transaction value is so low it would likely hobble crypto payments.

Read more: Why a Senate Bill’s $50 Tax Exemption Won’t Boost Crypto Spending

Meanwhile, the Commodity Futures Trading Commission (CFTC), which is becoming the odds-on favorite over the SEC to become chief crypto regulator, announced that it is elevating its FinTech and Crypto office, LabCFTC, into a new regulatory arm, the Office of Technology Innovation.

CFTC Chairman Rostin Behnam has been pushing to get more authority over cryptocurrencies, which the SEC has long said should be under its purview. Even if cryptocurrencies are designated as commodities, they may still also be securities, but the SEC would have a more difficult battle making that case in court.

See also: CFTC Introduces Office of Technology Innovation as Crypto Regulation Develops

Reports of on-again, off-again negotiations of a House proposal to regulate stablecoins this year while saving full crypto regulation for next year, are on again, CoinDesk reported Thursday (July 27). The current deal would make the Federal Reserve the chief overseer. Earlier reports suggested negotiations between Democrats and Republicans were at an impasse and the matter would be shelved until next year.

Read more: Reports: House Committee Close to Vote on ‘Payments Stablecoin’ Bill

U.K. to Regulate Stablecoin Payments

Legislation introduced in the U.K.’s House of Commons on July 20 will formally move stablecoins into the monetary system. If passed, it would designate stablecoins and other cryptocurrencies as “Digital Settlement Assets” that are “digital representation of value or rights, whether or not cryptographically secured, that can be used for the settlement of payment obligations.”

Aside from providing the stability and certainty of being supervised by the Bank of England (BoE), the bill would help the U.K. stay at the forefront of new technologies and innovations, said the British chancellor, Nadhim Zahawi, who added that it will “enable certain types of stablecoins to be regulated as a form of payment in the U.K.”

The bill authorizes the treasury to oversee the regulation of DSA issuers, exchange platforms and digital wallet providers — in consultation with the BoE, Financial Conduct Authority (FCA) and the Payment Systems Regulator.

Read more: UK’s Financial Services Bill Will Make Stablecoins a Form of Payment

EU’s Crypto Regulator Short-Staffed

With the European Parliament close to passing the Markets in Crypto Assets (MiCA) regulatory bill, European Banking Authority (EBA) Chair José Manuel Campa said he is concerned that the agency will not be able to staff a governance and enforcement division before regulations go into effect in 2025. With a global shortage of people knowledgeable about cryptocurrencies, building a digital regulatory agency could be tough, he warned.

Read more: European Banking Authority Chair Needs Staff to Govern Crypto

Crypto Political Donations OK’d

State and local political candidates in California will soon be able to accept campaign contributions in cryptocurrencies — and payments processors will play a key role. The new policy adopted by the Fair Political Practices Commission requires the immediate conversion of crypto to dollars. In addition, donations must be made through a registered processor responsible for collecting the personal data required from political donors, notably their names, addresses, occupations and employers.

“Requiring committees to use a payment processor that collects the name, address, occupation and employer of each contributor” will help ensure that contributor information “may be fully and truthfully disclosed in a timely manner,” according to a staff report explaining the policy.

See here: California to Allow Crypto Campaign Contributions

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