Ex-FDIC chair Sheila Bair wants US crypto regulatory framework
Sheila Bair, chair of the US Federal Deposit Insurance Corporation (FDIC) for five years between 2006 and 2011, says it is time that a formal federal regulatory framework was established to regulate cryptocurrencies.
Speaking at the Yahoo All-Markets Summit in New York on Thursday Bair, who is now a board member at blockchain start-up Paxos, commented: “I think it’s a legitimate new asset class. There’s a lot of stuff in there that’s not particularly valuable. I don’t think this is a space that retail investors should be wading into.”
She added that it was time for to intervene and regulate the marketing, trading, and selling of virtual currencies in response to the growth of the industry and the potential for price manipulation and fraud.
A dividing line
Bair stressed the importance of distinguishing between cryptocurrencies and blockchain technology, adding that the latter “has huge promise.”
“There’s a lot of noise out there [in the crypto space] that’s not worth much of anything,” she said. “I wish we had a federal regulatory framework for it. That would be extremely helpful.
“The Securities and Exchange Commission (SEC) has done a lot of good work, the Commodity Futures Trading Association (CFTC) as well. But Congress probably needs to step in with some sort of federal regulatory framework for the marketing, trading, and selling of these assets.”
Asked what regulatory infrastructure would be most appropriate, Bair said one similar to that used for regulating gold could be one option. But whatever the approach was adopted, it should encourage transparency in the virtual currency market.
“It’s a new asset class, so do you go with a commodities or a securities-and-equity model?” she added. “For bitcoin, the closest thing I can think of is gold, so maybe more of a commodity-type regulatory framework would work better. But some of these initial coin offerings (ICOs) are clearly fundraising vehicles and are economically equivalent to securities, so you might have to have some type of bifurcated system.”
Bair also believes that existing safeguards to deter the illicit use of cryptocurrencies for money laundering aren’t tough enough. “Regulated trading venues with trade reporting that have robust controls against manipulation in this concentrated market [is needed],” she said. “The important thing is to get a federal regulatory framework in place.”
Despite harbouring reservations about cryptocurrencies, Bair has taken the line that they should not be banned.