The regulation of the encryption industry has always been a topic that cannot be avoided. Webster Ratings once said that in the encryption field, laws should be adapted to technology, not technology. Let’s take a look at the regulatory attitudes of various states in the United States.
The National Banking Supervisory Board (CSBS) is an organization composed of national financial regulatory agencies that will make it easier for financial technology payment companies and cryptocurrency exchanges to prove that they comply with state laws.
CSBS announced on Tuesday a “one company, one inspection” plan, according to which states will coordinate supervision inspections of the country’s largest payment company to reduce the cost of state regulators and their regulatory companies. Essentially, the focus of this investigation is how these regulators will ensure that regulated entities still comply with the law.
For cryptocurrency companies like Coinbase, the plan will reduce the cost of compliance. These exchanges no longer need to check with more than 50 state and regional regulatory agencies, but only need to check with one agency. But these regulatory agencies do not include Montana, because Montana does not have a currency transmission license.
Crypto exchanges require currency transmission permits to operate legally in most states for supervision by state banks or financial services regulators.
“For the industry, this means that the regulatory burden will be reduced,” said Matt Lambert, CSBS non-bank legal counsel.
However, the new exchange still needs to apply for and obtain a license for each of its target operating states. Although CSBS is working to develop a potential standard for applications, there is still a long way to go.
At present, this measure is only applicable to the 78 largest fund transfer institutions in the United States, which operate in at least 40 states. Although Lambert declined to disclose which encryption businesses will be covered, a search in the Nationwide Multistate Licensing System & Registry database shows that such companies may include Coinbase, Circle Internet Financial, and Square.
The number of companies benefiting from CSBS announcements may increase. Although there are currently no plans to increase the list of companies, Lambert said that more companies may be added later.
Strict standards
Lambert said that part of the reason why CSBS announced its efforts to strengthen regulation was to solicit feedback from the encryption industry and found that regulated entities believed that “there are too many regulations to accomplish the same goal.”
He said: “In general, I think this process will lead to high standards, the most stringent standards,” “This is not a means to defy the minimum standards, but a way to raise individual standards.”
Each inspection will be undertaken by some state regulatory agencies, and the composition of these institutions will vary depending on the situation of the inspection. In this way, the regulatory agencies coordinate with each other to find the most suitable plan for each company’s evaluation. The state will lead other team members to conduct each inspection.
Daniel Gorfine, former head of fintech innovation at the Commodity Futures Trading Commission and director of the Digital Dollar Project, told CoinDesk that this move will help develop regulations around fintech.
He said: “This approach will be similar to a dual-banking system. It will recognize state and federal chartered banks and can safely promote competition, innovation, and consumer and industry choices.”
Linda Lacewell, head of New York’s financial services department, also agreed with him. She said on Twitter that in order for the states to better understand the local ecosystem, it is necessary to establish a dual banking system.
cut costs
Through coordination, states can save their own resources.
Lambert said that different states can reduce their regulatory costs because they do not need to conduct every inspection. He said: “If you have only one inspection nationwide, then you can be sure that you will be the best inspector to inspect, so you can make better use of the resources of each state.”
Lacewell said on Twitter that the move will also “lighten the burden on the industry.”
Lowenstein Sandler’s lawyer Brian Nistler said that regulated companies will also find their bills reduced. He told CoinDesk that the first impact is “the reduction of compliance costs and regulatory redundancy for currency service companies and state regulators.”
This is especially important because the cost of the encryption industry has “exploded” in the past few years. Therefore, some agencies have requested simplified inspections for a long time.
Circle’s CEO Jeremy Allaire agreed. He said in a statement that this move will simplify cooperation between his company and the National Banking Regulatory Authority, and that the new framework is of great significance for crypto and financial technology companies. He said: “This move will ensure that there is a consistent and well-functioning process to review companies and ensure that they can meet their regulatory obligations.”
National framework
What Tuesday’s statement did not address was the establishment of a national framework for crypto companies. However, Lambert said this is the latest effort made by the state government to strengthen coordination over the years. “For a long time, the US states have been working together on fund transfer supervision. Initially through the Association of Fund Transfer Regulators, they continue to work through the states.”
The next step may be to establish a multi-state license agreement. In fact, this project has been going on for some time, and 29 states have participated in it.
It is unclear whether such an effort will negate the necessity of establishing a federal charter, as suggested by Brian Brooks, Director of the Federal Audit Office. Specifically, its proposed charter will allow fintech companies to completely bypass the state framework.
Nistler pointed out that when states drafted their various fund transfer permit regulations, as Gorfine shared, “no one would think that states will be responsible for regulating borderless online platforms.”
Kristin Smith, executive director of the Blockchain Association, said that a national framework or federal law is still needed. She said: “It doesn’t make much sense to mix supervision and supervision.”
Brooks agrees with CSBS’s statement of this move, but also said that he agrees with the view that the federal agency regulates payment companies. He said in a statement: “While these efforts have alleviated some of the inherent challenges faced by systems based on 50 state laws and licensing systems, only federal law and the unified regulatory framework it provides can completely solve these problems.”
