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Regulators Crack Down on Cryptocurrency Trading

6 March 2018

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Market regulators in several jurisdictions are taking steps to limit speculation in cryptocurrency trading.

In Asia, South Korea's Financial Services Commission announced several measures on Jan. 23, including a ban on anonymous accounts. The announcement was the latest in a wave of restrictions on cryptocurrency trading in Korea, which accounts for a sizeable proportion of the global market.

On Feb. 9, the Hong Kong Securities and Futures Commission again warned investors about the potential risks of dealing with cryptocurrency exchanges and investing in initial coin offerings. The SFC also announced a crackdown on cryptocurrency exchanges that operate in Hong Kong without a license or violate local securities laws.

“We will continue to police the market and enforce when necessary. But we are also urging market professionals to do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law,” Ashley Alder, the SFC’s chief executive officer, said in a statement.

On Feb. 12 three pan-European regulatory bodies issued an EU-wide warning to consumers regarding the risks of buying virtual currencies, emphasizing that they are highly volatile, generally not backed by any tangible assets, unregulated and unsuitable as investment, savings or retirement planning products.

The regulators said they are concerned that an increasing number of consumers are buying these currencies while unaware of the risks involved. They warned that virtual currencies such as bitcoin are subject to extreme price volatility and consumers should be aware that there is a high risk that they will lose a large proportion or all of the money they invest. They also warned that on some trading platforms, consumers have been unable to buy or sell virtual currencies when they wanted and have suffered losses due to changes in price during a period of disruption.

In the U.S., the Commodity Futures Trading Commission and the Securities and Exchange Commission have reiterated warnings about the risks of trading cryptocurrencies, stepped up the pace of their enforcement actions, and indicated a willingness to work with lawmakers on a regulatory framework for this market. The SEC's director of investment management issued a letter on Jan. 18 casting doubt on the agency's willingness to allow exchange-traded funds based on cryptocurrencies or their derivatives. On Jan. 31, the top two members of the Senate Agriculture Committee asked the CFTC to provide information about the CFTC's oversight of bitcoin futures and how it will protect consumers from fraud and manipulation. The two Senators, Pat Roberts, R-Kans., and Debbie Stabenow, D-Mich., also asked Giancarlo how the CFTC will carry out its surveillance of the bitcoin market.

On Feb. 6, CFTC Chairman Chris Giancarlo and SEC Chairman Jay Clayton made a joint appearance before the Senate Banking Committee to discuss the oversight of the cryptocurrency market. The hearing highlighted the embryonic nature of the regulatory framework for cryptocurrencies in the U.S., with various branches of the government focusing on certain aspects but no regulator with overall authority. The two regulators also explained that they are trying to strike between encouraging innovation, protecting investors, and preventing fraud and manipulation. Giancarlo commented that that many young people, including his own children, have taken an interest in bitcoin, and said that regulators should “respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one.”

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