The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended or with any other regulatory authority of any State or other jurisdiction of the United States or Canada and (i) may not be offered, sold or delivered within the United States or Canada, or to, or for the account or benefit of any U.S. Person or Canadian, and (ii) may be offered, sold or otherwise delivered at any time only to transferees that are Non-United States Persons and Non-Canadians.

September 21, 2022

Biden; FTX warning; SEC

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, on key industry news that has caught our eye, plus our own developments. 

Comments available on the following news items:

  • Biden administration publishes crypto framework
  • UK regulator sends FTX warning, but lacks the tools for tougher action
  • SEC lawsuit could be key to crypto future in US

Biden framework for crypto underlines the complexity of progress

The White House has released an updated framework detailing key issues and actions for the Federal Government in response to the developing crypto industry. It is a welcome addition to a growing body of regulatory and Governmental oversight of the sector. 

But the report highlights the sheer complexity of coordinating Government institutions to promote the sector and protect interested parties from failure and fraud. However, much of what is stipulated in its report in practice are actions already undertaken in the TradFi space.

In reality what is being pursued here is the normalisation of crypto into existing structures and rule sets. Of course, there is much discussion to be had between legislators, Government agencies and the industry, but broadly bringing crypto within the remit of TradFi oversight is the right way to implement regulation. 

These are regulations that have been carefully thought through and studied for their practical implications over a long time span. Crypto does not operate in a void and should be prepared to begin to comply, soon. Taking a proactive approach to this, at this point, could be a very worthwhile investment of resources. 

UK regulator lacks tools to take on unregulated crypto players

The UK’s Financial Conduct Authority has flexed its regulatory muscles in warning FTX it may be offering financial products and services with no authority to do so. The episode is worrying for a few reasons – particularly at such a sensitive juncture for the space. 

The example of Binance last year set a precedent for action from the FCA. But while the regulator is making considered warnings against these major crypto firms, which are, allegedly, operating without due right to – the issue is that there’s little more that it can do to effectively stop them from continuing.

There is a clear need here for more coordinated global action to better regulate crypto services providers that fail to comply with local authorisations. FTX is working on regulation in the EU, via Cyprus, but this is potentially no longer relevant to the UK post-Brexit.

Binance for its part promised to comply with UK regulations, so it remains to be seen if FTX will make a similar move. But this relies on the goodwill of the business in question. Less savoury players in the space can – and will – continue to take advantage of loopholes and this presents a major risk to consumers.   

SEC lawsuit could be major test of a big crypto question

The SEC has filed a federal lawsuit against a crypto influencer for failing to register a token as a security in its initial coin offering (ICO) in 2018. The outcome of the case could have enormous implications for crypto in the US, most notably with Ethereum at the centre of the argument.

Regulation is at the top of the agenda for most of the sector now, and this has been thrown into particularly sharp relief in recent months. But such is the way that legal systems function in some regions, the use of case law could essentially work to force the hand of an entire sector and greatly enhance the power of regulators without the creation of new frameworks. 

“Are cryptoassets securities” is currently the great unanswered question of the entire debate – and forcing a decision through the courts could provide clarity for both regulators and the industry. But the potential ramifications of this are enormous, and could pull the rug from under a range of crypto projects (for better or worse) that don’t seek to comply. 

The US (as mentioned above) is marching toward greater oversight of crypto and this is a good thing. But what seems to be at play here is the SEC making a clear move to force the situation. 

It’s incumbent on crypto providers now to get their houses in order. If the ruling comes back that it is indeed a security, compliance with that will be forced swiftly upon them whether they like it or not.