Concerns on Broker Disintermediation and Unregulated Crypto Exchanges Marc Powers is currently a professor at the Florida University College of law. He teaches the Blockchain Crypto and Regulation Consideration course. He has spent most of his long career working on security-related cases in the United States. Power on … is an online column where he airs his monthly opinions to the public.
Governments worldwide fear losing control over their legal, financial systems to the hundreds of unlicensed and unregulated crypto exchanges.
There is an evident rise of concern by government regulators in England, China, the United States, and other parts of the globe. They are now more focused on unregulated exchanges that offer derivatives trading and spot market in the many cryptocurrencies.
These efforts came to shove after regulators tamped down on the early coin offering, security token offering, and simple arrangements for token contracts in the 2016-2020 period.
In some measures, these concerns are justified to protect the investors who may not understand the hitch of their trading activities. In addition, most cryptocurrencies' prices are volatile, which could be a significant problem for their customers.
Whenever the prices fall, and they are forced to back their accounts with adequate reserves. If they don't have cash at hand, their positions are liquidated, resulting in a substantial loss for that account.
Under the security laws, there is a capital rule on brokers known as broker-dealers. It allows them to maintain a certain level of capital representative of the asset value of their customers. These rules ensure that they retain the least possible levels of liquid assets and are well stipulated in Rule 15c 3-1, which was promulgated in 1934 under the security exchange act of the same year.
In the cryptocurrency market, the middleman has been cut off from the trade chain. There is no broker to help customers check on the suitability of the trading activity and protect digital assets. Crypto digital assets are held together with the exchanges where one trades.
In this kind of market, if the trade fails, the investor could lose all their investment. Currently, no federal regulatory body examines these firms' records to check on financial health and their activities.
According to May reports, there have been concerns about some firms under investigation in the US by the Justice Department and IRS looking for possibilities of tax offenses and money laundering violations.