A former federal prosecutor in the US has said attempts by the cryptocurrency world to self-regulate ought to be questioned by those in the industry.
Joseph Moreno, who formerly served as a federal prosecutor and now works as a partner in the White Collar Defense and Investigations Group at law firm Cadwalader, said that self-regulation organisations – or SROs – were lacking the necessary authority to effect any meaningful change.
“There’s no teeth in an SRO if there’s not a regulatory body behind it… It doesn’t look to be very effective without statutory authority”, he said.
His comments came after two relatively new crypto industry groups came on to the scene.
The inaugural self-regulation organisation in the crypto world, the Virtual Commodity Association (VCA), was set up by Cameron and Tyler Winklevoss.
The Winklevoss’ themselves have fallen victim to regulation covering cryptocurrencies in recent times. In July of this year, the US Securities and Exchange Commission (SEC) refused to grant them a license to list a Bitcoin-based exchange-traded fund on an exchange.
Cameron Winklevoss himself publicly set out some of the aims of the VCA in a blog post when the group was set up earlier this year.
The group aims to “foster financially sound, responsible, and innovative virtual commodity markets through a system of industry-sponsored standards, sound practices, and oversight that promotes price discovery, efficiency, and transparency”, he said.
It will also look to “incentivise the detection and deterrence of manipulative and fraudulent acts and practices, including partnering with regulators and particularly the CFTC to share or refer information, as appropriate”.
Another group, the Blockchain Association, has a number of high profile participants from within the industry including Coinbase and Zcash.
Both groups have a commitment of some variety to self-regulation for the crypto industry. The Blockchain Association, for example, focuses in particular on how tokens relate to tax payments as well as issues around consumer protection.
When the Blockchain Association was set up, Coinbase took steps to specifically defend itself against the claim that it was cheating.
“We’re not companies looking to game the system, but trying to develop a legal and regulatory system that’ll stand the test of time”, said Mike Lempres, the firm’s chief legal and risk officer.
However, according to Moreno, these organisations don’t have the same sort of authority that governments and the law have – in large part because they don’t have the power to cause financial hardship to crypto firms which break the rules.
The new auto-regulation groups “will not have any governmental-like regulatory authority to bring enforcement actions or levy fines”, he claims.
He appeared to suggest that this was somewhat inevitable within the cryptocurrency world given the decentralised, almost ungovernable nature of the commodity and how it functions in practice.
“Part of the charm and fascination of blockchain is its ability to take out central intermediaries”, he said. “Within the community, there is a direct natural bias against centralisation and giving power over to the central authority.”