Ripple Proposes an Approach to Regulating the Cryptocurrency Industry

Ripple has published a proposal for cryptocurrency regulation following its direct interactions with regulators and bipartisan policymakers.

Ripple has published a document titled "A Realistic Approach to Cryptocurrency Regulation", which outlined possible approaches to developing a regulatory framework to control the industry.

Ripple’s real approach to cryptocurrency regulation

The Ripple document states that cryptocurrencies and blockchain are evolving rapidly, so these industries need to be regulated in a new way. When developing regulations and drafting laws on cryptocurrencies, regulators should think not only about protecting users, but also creating conditions for the development of innovations. This requires well-coordinated cooperation of cryptocurrency firms with government agencies.

Ripple emphasized that one of the goals of the Law on Removing Barriers to Innovation is to create an open dialogue between the government and the private sector. Therefore, Ripple interacts with various policymakers on cryptocurrency regulation. The company hopes that these discussions will allow them to understand the opportunities and needs of the cryptocurrency industry, and the government will clarify its regulation.

In August, Congressmen approached the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC) with a proposal to create a task force to interact with participants in the cryptocurrency industry. However, this proposal is still pending in the Senate. Ripple believes that regulators could join forces with stakeholders to create sound regulatory requirements for the cryptocurrency industry.

This year, Republicans Tom Emmer, Darren Soto and Ro Khanna introduced the Securities Clarity Act (SCA). It aims to remove the ambiguity that arises when using the Howie test to determine whether an asset qualifies as a security. According to this test, any transaction that has the characteristics of an investment contract is automatically considered a security.

The bill proposes a new term "investment contract asset", which does not fall into the same category as securities. This means that cryptocurrencies cannot be considered securities as they are launched under an investment treaty. Ripple claims that this bill defines digital assets as commodities because if securities laws cannot be applied to cryptoassets, other regulatory mechanisms are needed to keep the market safe.

The company cited the Digital Commodity Exchange Act 2020 (DCEA) proposed last year by Michael Conaway. According to the DCEA, digital currencies will be regulated by the Commodity Exchange Act (CEA) along with commodities, so the activities of cryptocurrency exchanges will be controlled by the CFTC. Ripple believes the SCA and DCEA bills can be applied to the traditional financial sector and need to be adapted for blockchain and cryptocurrency development.

Ripple has also proposed creating regulatory sandboxes to avoid blockchain and cryptocurrency specialists emigrating abroad. In addition, it will create a "safe haven" for cryptocurrency issuers who will be temporarily exempted from federal securities laws.

As a reminder, in 2018, the US Consumer Financial Protection Bureau (CFPB) has already launched a regulatory sandbox to support blockchain and financial technology development.

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