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Former regulators at the heart of mainstream US financial markets have been grappling with new roles in the fast-changing cryptocurrency industry for the past decade, with some key appointments lasting only a few months.
For the past six months, crypto firms have hired officials from every corner of the U.S. Byzantine regulatory network to prepare for potentially stricter rules for an industry that has so far slipped through the cracks while collecting billions of dollars from consumers and funds.
Jay Clayton, who served as chairman of the U.S. Securities and Exchange Commission from 2017-2020, became the last former official to turn to the crypto industry when he joined the advisory board of cryptocurrency infrastructure firm Fireblocks in August. took over One River Digital Asset Management in March.
But some of Clayton’s former colleagues who made the move into cryptocurrency struggled to figure out where to fit in a more permissive environment.
This week, Chris Giancarlo, the former chairman of the derivatives market regulator, the Commodity Futures Trading Commission, stepped down from his position on the board of directors of BlockFi, a crypto lending platform, four months after taking office.
Brian Brooks, former head of banking supervision OCC, stepped down from his role as US chief of Binance in August after just three months. Brett Redfearn, a former senior SEC official, spent four months in a position at Coinbase, the publicly traded crypto exchange, before also leaving in August.
The quick exits reflect the tensions former regulators are facing in this fledgling industry.
For Giancarlo, a longtime proponent of cryptocurrencies, the decision to step down comes as he tried to streamline his involvement in the industry and focus on fewer projects, he told the Financial Times. He will remain as an informal advisor to BlockFi, but intends to pay more attention to its Digital Dollar Project, which is exploring the creation of a Federal Reserve digital currency, while also publishing his upcoming book on the subject.
“It is a challenge for regulators to find their right point of entry into this market and I think we all need to reflect on our priorities,” Giancarlo told the FT.
Brooks left for various reasons. He quoted “differences over strategic direction” and wished his former colleagues at Binance “every success” when he announced his resignation on Twitter. His decision came at a time when Binance was facing increasing regulatory scrutiny around the world.
Redfearn told the Financial Times that he left because of strategic changes. Coinbase hired Redfearn to work on digital asset securities, which, unlike some cryptocurrencies like Bitcoin, which regulators consider a commodity, would be largely covered by existing securities regulation. Coinbase decided to move away from the project, which resulted in Redfearn’s departure.
“We recently downgraded the priority of securities for digital assets,” said a Coinbase spokesman. “With this in mind, Brett Redfearn decided to pursue other opportunities in the capital markets and stocks.”
The regulatory boost in crypto markets has been boosted by an explosion in crypto trading over the past 18 months and the appointment of Gary Gensler as chairman of the Securities and Exchange Commission. Gensler, the firebrand regulator responsible for implementing the 2010 Dodd-Frank Act at the CFTC and tightening regulations for the over-the-counter derivatives industry, quickly called for new powers to oversee crypto exchanges and assets.
This has resulted in major exchanges in the fast-growing crypto derivatives space strengthening compliance teams as attention rises to what is now the $ 2 trillion industry.
FTX, which bought the CFTC-regulated LedgerX platform on August 31, has recently appointed Gensler’s former counsel Ryne Miller as its new general counsel. FTX is one of the largest marketplaces for cryptocurrency derivatives.
“Miller’s primary goal will be to ensure that FTX.US responds to and complies with emerging US and global regulatory guidelines,” FTX said at the time.
Binance, the largest exchange for derivative contracts on digital assets, said it wanted to become “a leader in regulatory compliance” by hiring Richard Teng, a former chief executive of the Financial Services Regulatory Authority at Abu Dhabi Global Markets who previously had spent more than a decade working for the Monetary Authority of Singapore.
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Other high profile settings remain in the crypto industry. Mark Wetjen, Gensler’s successor at CFTC, joined MIAX, an exchange operator, in January 2020 to lead expansion into futures and digital products.
The influx of ex-regulators is the latest wave of seasoned financial market professionals moving to the digital asset markets, where rapid growth has drawn bankers for years. The potential regulation of crypto is seen as similar to efforts to regulate the derivatives industry after the global financial crisis, with many who worked on new rules a decade ago now entering the new market.
“I see this as incredibly similar to what we did with the derivatives industry after 2008,” said a former banker who stepped into the crypto world. “It’s the same movie again. The legitimacy of this asset class continues to grow and we are all currently considering how we can apply our experience to it. “
Additional coverage from Michael Mackenzie in New York