FTX Fallout: More Lawmakers Take Sides in Crypto Regulation
It’s not even the new session and lawmakers on both sides of the crypto divide are getting louder about the issue in the wake of FTX, but will that momentum carry on to support for crypto regulatory reform in the new congress?
On the one side you have anti-crypto senators launching among the most problematic of measures that would apply Know Your Client rules to wallet providers and crypto users, citing empty rhetoric about terrorism and money laundering:
U.S. Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) are introducing a bill to crack down on money laundering and financing of terrorists and rogue nations via cryptocurrency.
If it becomes law, the Digital Asset Anti-Money Laundering Act will bring know-your-customer (KYC) rules to crypto participants such as wallet providers and miners and prohibit financial institutions from transacting with digital asset mixers, which are tools designed to obscure the origin of funds.
The act would also allow the Financial Crimes Enforcement Network (FinCEN) to implement a proposed rule requiring institutions to report certain transactions involving unhosted wallets – wallets where the user has complete control over the contents rather than relying on an exchange or other third party.
And on the other side you have increasingly loud voices in Congress defending crypto principles like privacy even as they condemn FTX:
United States businessman and senator Patrick “Pat” Toomey Jr. recently weighed in on the charges on SBF and the testimony of current FTX CEO John J. Ray who was called to testify on the firm’s implosion in the wake of Sam Bankman-Fried’s detainment.
According to Toomey, the FTX saga looks like a case of commonplace fraud, and the charges brought on SBF by the DoJ and SEC are not against the crypto industry but those who abuse it.
Recall that, following his arrest by Bahamian police at the behest of United States authorities, the U.S. Department of Justice (DoJ) filed formal charges against SBF on the grounds of ‘fraud, money laundering, and campaign finance offenses.’ The U.S. Securities and Exchange Commission (SEC) also indicted the FTX founder for defrauding exchange investors. Furthermore, the CFTC charged SBF, FTX Trading, and Alameda Research with fraud and material misrepresentations yesterday.
“The testimony yesterday underscored a very important point: this really looked like garden-variety fraud that has happened in the past, usually with dollars or securities of the conventional sort; and here, it happened to happen with crypto. It is not an indictment against crypto; it is an indictment against the guys who misused it,” Toomey said in a CNBC Squawk Box interview.
Toomey further noted that the recent FTX collapse highlights the need for regulatory clarity within the crypto industry. “We are inevitably going to have a big conversation on where we go from here,” Toomey said. He stated that the U.S. Congress should pass the legislation he has been calling for, which will clarify which agency oversees which assets and how these can be regulated.
“Congress should finally pass the legislation that I’ve been urging us to pass, which will provide the regulatory clarity so that we don’t have this ambiguity as to who’s got the authority here – who doesn’t – and how does it get regulated. We need to eliminate that; then we would have business flowing to prudent, sensible, well-regulated American exchanges,” he concluded.
In either case, it’s critical the industry get involved in the coming fight over regulatory reform or else risk getting steamrolled by people who don’t understand the potential of blockchain and Web3.