The U.S. Securities and Exchange Commission stated on Wednesday that plenty of online trading platforms for cryptocurrencies should be registered with the regulator and thus subject to additional rules in a further sign regulators are now cracking down on the virtual currency sector.
In a statement released earlier, the Securities and Exchange Commission said these “unlawful” platforms may be giving investors an unequivocal sense of safety by labeling themselves as “exchanges.”
The regulator further stated that these platforms needed to register with the Securities and Exchange Commission as a regulated national securities exchange or an alternate trading system(ATS).
This new statement marks the most recent effort by the Securities and Exchange Commission to apply federal securities laws to the rapidly expanding cryptocurrency sector. Securities and Exchange Commission federal securities laws Chief Jay Clayton has now repeatedly expressed concern about cryptocurrencies and “initial coin offerings,” aka ICOs, and has thus urged investors to exercise extreme caution.
“The Securities and Exchange Commission staff has pressing concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they actually are not,” the agency stated on Wednesday.
Jay Clayton has stated previously that he generally considers ICOs to be securities offerings which are subject to certain regulatory requirements.
On Wednesday, the Securities and Exchange Commission went even further by suggesting the majority of secondary market trading in those digital tokens was also subject to its jurisdiction.
The oversight regulator said any platform providing trading of digital assets that may behave like securities and which operate like exchanges must register with the Securities and Exchange Commission as a national securities exchange, or seek an exemption such as ATS registration.
While there are many platforms offering trading in cryptocurrencies, we could only identify only, Liquidity M – which is the broker dealer for Templum – that had registered with the Securities and Exchange Commission as an ATS, according to Securities and Exchange Commission data.
The regulator also added that certain cryptocurrency platforms may not behave like exchanges but rather offer related services – such as digital e-wallets – that in turn trigger other registration requirements, i.e becoming a clearing agent or broker dealer.
Dina Ellis Rochkind, lead counsel at Paul Hastings in Washington has worked with many ICO providers and said this Securities and Exchange Commission notice marked yet another effort by the regulator to protect retail investors purchasing digital assets on platforms that do not explicitly afford the protections associated with SEC-registered exchanges.
“The Securities and Exchange Commission statement forebodes that it will be cracking down on the various trading platforms that are now operating illegally and could soon be subject to market manipulation. This is a positive step however because it will shut out bad actors and thus further legitimize the industry as it matures,” she then added.
The Securities and Exchange Commission statement follows recent media reports on Tuesday that the United States Treasury’s financial crime division told Congress in a letter last month that some Initial Coin Offerings may also be subject to the Treasury’s money transmission registration, anti-money-laundering laws as well as Bank Secrecy Act requirements.