On the final day of Chairman Jay Clayton, the SEC filed a lawsuit against Ripple, which many believe … [+]
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Just hours before Securities and Exchange Commission (SEC) Chairman Jay Clayton vacated the building on Dec. 23 at the end of his tenure, the SEC filed a lawsuit against Ripple Labs Inc., alleging that he built more than $ 1.3 billion through the sale and distribution of unregistered XRP digital assets. Ripple, founded in San Francisco in 2012, operates RippleNet and an XRP payment protocol, which is rated better than bitcoin with its improved ledger, faster settlement speed, and digital wallet for transactions. international across 55 countries. Ripple is one of the titans of the new crypto industry in the US, developing real economy products from revolutionary technology.
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A Ripple blockchain-like exchange network is said to be an efficient, inclusive and low-cost development (some say an alternative) to traditional payment networks such as the Association for Interbank Financial Telecommunications worldwide (SWIFT) and others. The SEC suit does not prosecute fraud but seeks anonymous damage and prevents Ripple executives from engaging in digital asset market trading. The case seems to detract from one of the few positive aspects of Clayton’s 2017 Statement on Cryptocurrencies and Original Coin Donations noting that the technologies could be “disruptive, transformative and increase efficiency” “ facilitate capital creation and provide promising investment opportunities for institutional and High Street investors. . ”The case largely reaffirms Clayton’s statement in which he argued for the SEC’s supreme authority to govern all potential digital assets, regardless of design, intent or purpose. practice.
After the suit, the price of XRP fell 25 percent, and some trading was suspended. Ripple launched a strong response, calling the attack suit the crisis cryptocurrency industry in general. The issue has interesting parallels to telecommunications in which regulators use unused laws to regulate new technologies, weakening U.S. competitiveness in innovation. Clayton’s separation was the biggest swipe he made against an innovative business that he spent four years trying to gain the upper hand with authority claimed from legislation in 1934. With the influence of potentially obscured, the case is shaping up to be the crypto experiment of the century. Here are some key issues.
1. Money or Security?
The key question is whether XRP is money or security. Money is a medium of exchange and a store of value, such as dollars, gold, or frequent flights. On the other hand, a security is a financial investment contract, usually tradable, such as stocks or bonds. This is important because there are different laws and regulations. In 2015 the U.S. Department of Justice and Finance Department, as part of a settlement with the Financial Crimes Enforcement Network (FinCEN), decided that XRP is money. In fact, Ripple has been complying with rules for digital currencies with these organizations for 5 years, as well as complying with currencies it achieves across countries. Ripple notes that the XRP ledger is decentralized and open source, working on consensus among a growing community of users and developers making new products with it, and XRP is not an investment contract in their company or something they control. If investors want to invest in Ripple, they would be buying shares in the company itself, not XRP.
This decision did not preclude the SEC from claiming that Ripple ‘s practices with XRP lead to investment contracts under the Howey test and therefore require disclosures such as “securities. The SEC has pushed similar outfits against other cryptocurrencies, most notably Grams from Telegram and Kik Interactive tokens, causing tensions in the cryptocurrency world as eight American financial regulators jockey for pre-reputation as the main cop in fintech.
2. Regulatory Boundaries
The case represents a major cross-regulatory approach. Reasonable minds can agree that while financial technology may be strong, it is Congress, not regulators, that decides what is regulated. Despite the cryptocurrency industry’s claim for a reasonable framework, Congress has unfortunately not said much about cryptocurrency, leaving regulators to make up their own rules. This development is similar to the regulatory experience on broadband internet, which has only a passing reference in the Telecommunications Act 1996. Without a Congressional framework in place, the Federal Communications Commission attempted Obama (FCC) to regulate the internet with the laws designed to regulate phone prices. Claiming that the internet was just a direct extension of the phone network, FCC Democrats promoted a policy designed to protect the Silicon Valley giants in the name of helping consumers. The gambit spawned more than a decade of litigation and halted billions of dollars in investment in new broadband networks, depriving broadband network operators the ability to recoup costs and creating a digital divide in rural areas. With the Ripple case, the shoe is on the other foot; a Republican group in administration that is specifically “deregulatory” aims to protect customers by going after money launderers. Such a catch of turf is a classic sign of regulatory downturn, and carelessly keeping forces of lawyers in business in federal courts.
3. Do regulators protect Chinese or US customers?
While disclosure is recognized as an important element for market action and consumer protection, it is interesting that the SEC has allowed hundreds of Chinese companies with a collection value of $ 2.2 trillion to list on U.S. exchanges without disclosures or studies for nearly two decades, jeopardizing the threat. US investors. Earlier this year the U.S.-China bipartisan Commission included this in a report to Congress and outlined how China is enjoying the fruits of American financial markets while at the same time the rise of global norms. But America’s new cryptocurrency industry seems to be the focus of Clayton’s anger, not China’s.
Anyway, consumers are increasingly drawn to Ripple and cryptocurrencies just to avoid the cost and complexity of traditional, fully regulated financial services, a move that in itself shows that innovation is often delivering better results than management. Moreover, the apparent deficit spending by the U.S. government is driving down the value of the dollar and driving investors and consumers to a lighter, more dispersed currency like cryptocurrency.
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4. What is the US strategy for cryptocurrencies and blockchain?
The controversial approaches among U.S. regulatory bodies reflect the lack of a larger regulatory framework. While unlicensed innovation has helped spawn the innovation, regulators left unattended seek new things to regulate. In the past the austerity approach may not have been as good, but today the U.S. is facing an economic and security crisis with China, which is determined to replace America. Seeing that the U.S. is not operating crypto together, China has moved to export its own digital currency, build a blockchain ledger from it, and pilot the use of the technology in its domestic economy. Replacing Clayton could be a much-needed replacement. While the SEC Chairman could get a faulty lawsuit, this new director does not have to repeat the flawed policy. More importantly, Congress should take action in 2021 and create the right framework for cryptocurrency to ensure U.S. leadership and clarify regulatory boundaries.