Securities Regulation Daily Wrap Up, BLOCKCHAIN—NASAA urges against favoring DLT over other means of transacting, (Sep 17, 2024)
The group says that tying regulators to certain technologies, including distributed ledger technologies, would make it more difficult to address scams like pig-butchering.
In a letter to House and Senate leaders, NASAA wrote to support a technology-neutral approach to securities and commodities market regulation. NASAA is responding to federal bills under consideration related to the trading of securities and commodities using distributed ledger technology (DLT). The group warns against entrenching a particular technology like DLT, which it says could stifle competition, discourage technological innovation, and make scams harder to address.
NASAA observes that various bills seek to adopt new laws for transactions using DLTs, which sponsors have described as “virtual currencies” and “payment stablecoins.” It is unclear whether these measures would amend federal laws for other types of transactions using DLTs, such as the offer and sale of stocks, bonds, mutual funds, or derivatives.
The group characterizes these bills as a departure from three decades of Congressional technology-neutrality. For instance, the securities and commodities laws use the word “electronic” far more often than they use the word “internet.”
Shifting to DLTs would give DLTs a competitive advantage, NASAA writes, and shifting to selected uses of DLTs would give those uses an unfair advantage over other present and future uses.
The letter focuses its concern on scams tied to new and emerging technologies, particularly pig-butchering scams. NASAA writes that state regulators have been able to act as the “local cops on the beat” to hold bad actors accountable because their authorities are not tied to selected technologies or selected uses of those technologies. Instead, the touchstone is the term “investment contract.” Keeping technology out of these definitions has helped to protect investors, the group posits.
Rather than passing bespoke legislation for DLTs, Congress should direct a joint rulemaking exercise among the CFTC, SEC, and state regulators. At a minimum, NASAA writes, Congress should make it clear through unequivocal legislative text that state governments have the authority to investigate and bring enforcement actions for violations of federal law. A failure to make this clear in federal legislation would immediately benefit scammers and harm individuals and businesses throughout the United States, and passing legislation that allows scammers to evade state regulators by using DLTs would be devastating to fraud victims with already limited recourse against organized crime operations.
NASAA said that it has prepared draft legislative text on the requested joint rulemaking exercise and would welcome the opportunity to provide further comments on the federal proposals.
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