Regulatory Update – SEC Probing Coinbase, CFTC Re-Structuring, Infrawatch PH Seeks Binance Ban

As the digital asset market continues to find its footing, various developments involving regulators have begun to play out in recent days.  The following are few examples of these, and what they entail.

SEC Probing Coinbase

Fresh off news involving past Coinbase employees being charged with insider trading by the Department of Justice (DoJ), it is believed that the SEC has now decided to initiate a probe in to the company itself.  The probe, which was first reported by Bloomberg, is believed to stem from accusations within the aforementioned insider trading case which imply that Coinbase was selling unregistered securities.

While the DoJ did not take any action against Coinbase, the SEC has apparently seen this as an opportunity to pounce and continue its longstanding approach of ‘regulation through enforcement' – a sentiment echoed by CFTC Commissioner Caroline Pham.

Source: Twitter @CarolineDPham

Those that have been around the digital asset for a while now may remember a time when Coinbase was notoriously slow and restrictive in its asset listings.  It was only after discussions with the SEC that the company began expanding its supported assets to the lofty grouping found today.  Per Coinbase, this discussion involved the SEC reviewing the company's asset vetting process – the same process used to determine whether the assets now being called securities could be listed.

This situation has prompted Coinbase CLO, Paul Grewal to issue a lengthy statement lambasting the action being taken by the SEC.

“We cooperated with the SEC’s investigation into the wrongdoing charged by the DOJ today. But instead of having a dialogue with us about the seven assets on our platform, the SEC jumped directly to litigation. The SEC’s charges put a spotlight on an important problem: the US doesn’t have a clear or workable regulatory framework for digital asset securities. And instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities.”

This issue is nothing new.  For years now the entire industry has made it clear that updated framework for digital asset securities needs to be established.  Despite this, along with calls from other regulatory bodies, the Biden administration issuing an executive order calling for updated frameworks to be developed, and Commissioners from within the SEC itself echoing a similar stance, issues like the one involving Coinbase continue to arise as the SEC continues its approach of regulation through enforcement.

CFTC Re-Structuring

Meanwhile at the Commodities Futures and Trading Commission (CFTC), a modest restructuring was recently announced as the regulatory body looks to ‘…promote responsible fintech innovation'.

In a recent keynote address by Chairman Rostin Behnam, he states, “We find ourselves here largely because the digital asset industry in the U.S. does not fall under a single comprehensive regulatory regime.  Instead, the CFTC, other federal agencies, and state regulators are most often collectively compared to a patchwork blanket that is increasingly proving inadequate as temperatures drop and vulnerabilities lay bare.”

He continues, “Our core policy divisions are now directly addressing how the CFTC can leverage our existing authority to bring important regulatory protections to this market [digital assets]”

“LabCFTC is evolving in new ways and will take on a new identity as the Office of Technology Innovation (OTI)…OTI will continue to lead the CFTC's efforts in incorporating innovation and technology into our regulatory oversight and mission critical functions, and it will do so purposefully by supporting the operating divisions and the Commission's participation in domestic and international coordination.”

Essentially, the CFTC is doing what the SEC refuses – establishing a division specifically to develop thoughtful framework to regulate an industry that does not fit within existing options.

Infrawatch PH Seeks Binance Ban

It is not only within the United States that regulators and the digital asset sector continue to clash.  The Philippines' Securities and Exchange Commission is now investigating the worlds largest exchange, Binance.

The investigation stems from a complaint put forth by a think tank within the nation that goes by the name Infrawatch PH, which alleges the exchange has been, and continues to operate within the country illegally.  In its complaint, various issues are highlighted, which range from operating without a business license to offering the following financial products without approval, and more.

• Spot Trading
• Margin Trading
• Futures Contracts
• Options
• Crypto Loans
• P2P Trading

Going further, the complaint highlights that Binance has already been banned in various countries, and insinuates that it was in large part responsible for the collapse of LUNA and UST.

Infrawatch PH Convenor, Terry Ridon, shares a clear disdain for the company, stating, “Millions of Filipino Binance users are exposed to several other financial risks every day and are left without recourse.  Binance exploits the Philippine market without accountability.”

For the time being, Binance is believed to be working with regulators to attain the required licensure to operate within the country.  Time will tell if Infrawatch PH is successful in having Binance shutdown, fined, and forever banned within the Philippines.