The rules apply to you. Now get over yourselves and start complying.
That was, roughly, the message that Amias Gerety, a partner at QED Investors and a Treasury Department official in the President Barack Obama administration, had for the cryptocurrency industry in a conversation with PYMNTS’ Karen Webster.
“I think that there’s been a willful desire not to accept laws that are already on the books,” Gerety said. “I think the clearer regulators can be, these are the laws, and they apply, the better off we’ll be.”
Gerety, who was first deputy assistant secretary for the Financial Stability Oversight Council and then acting assistant secretary for Financial Institutions at the Treasury Department when the 2008-2009 subprime mortgage crisis was playing out, was speaking specifically about the President’s Working Group on Financial Markets stablecoin report. But, he made clear, he was speaking about the crypto industry generally.
The stablecoin report — which Gerety addressed in much more detail in “The Stablecoin Problem”— called for new regulations to cover dollar-pegged cryptocurrencies, and the subsequent hearing by the House Financial Services Committee at which six crypto industry executives spoke.
“I was disappointed in the stablecoin report because instead of firmly asserting that there are laws in place to govern these activities, we have recommendations for potential new regulation, and then much less-well-stated discussion of potential actions that regulators could take,” he said. “I think that’s a mistake because what we can see from the hearing last week is where authorities are clear,” you get a divide between two halves of the crypto industry.
See more: Scenes From the Five-Hour Congressional Hearing on Crypto
On the one hand, he said, there are larger “entities that want to take law seriously, want to take compliance seriously — they have real market caps that they want to protect.” On the other hand, there are companies where things are grayer.
“There’s always going to be people who don’t want to comply with the law,” he said.
Gerety said that it is the U.S. authorities’ responsibility to be “crystal clear that the rules apply.”
Where that’s happened — most notably when it comes to cryptocurrency exchanges and other companies complying with know your customer (KYC) and anti-money laundering (AML) regulations — the big players are compliant. With those particular regulations, “there’s just no doubt about it — those rules apply,” he said.
At the same time, Gerety told Webster that there “has been a willful desire not to accept laws that are already on the book” by the crypto industry broadly. “Laws and regulations should be technology-agnostic. I don’t think that making an asset digital requires any new regulation.”
Gerety also spoke up in favor of something the crypto community has been talking about since former Securities and Exchange Commission (SEC) Chairman Jay Clayton started going after initial coin offerings as securities sales after the 2017 crypto boom: enforcement by regulation. Current SEC Chairman Gary Gensler is doing much the same thing, he added, except he is going after the biggest players instead of the biggest projects.
Read more: Regulatory Agency Turns Attention to Exchanges, SEC’s Gensler Again Calls Crypto ‘Wild West’
Looking at arguments that shoehorning crypto into the existing legal framework will kill innovations and damage its ability to provide faster and cheaper financial services around the clock, Gerety argued that there should be a “very high bar” for changing basic financial regulations for a new technology.
Besides, he noted, the existing banking system has both the Federal Reserve’s FedNow initiative and The Clearing House’s real-time payment product, RTP, are working on doing the same thing.
See also: Real-Time Payments Are Coming — But Do We Need Crypto to Deliver It?
“Ultimately, the way normal financial institutions do this is they read the laws,” Gerety told Webster. “They acknowledge the laws apply, and then they figure out the best compliance regime. And the crypto community has largely not taken that approach. And until they do, we’re going to have a lot of gnashing of teeth.”
But when they do, the discussion will be a lot more like the stablecoin hearing’s discussion of KYC and AML rules, he predicted.
“There’s not a lot of ambiguity,” he said. “You’ve got to comply. Here are your frameworks, hire some compliance people, hire good lawyers and just comply.”
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