The International “Wild West”: An argument for Multilateral Cooperation in Digital Asset Regulation

In two speeches made in 2021, Securities and Exchange Commission (SEC) Chair Gary Gensler and Commissioner Hester Peirce both compared the current regulatory environment surrounding digital assets to the “Wild West.” [1] The two offered different proposals on how to best rein in digital assets.[2] The divergence between Mr. Gensler and Ms. Peirce is a symptom of a much greater disease: nobody can agree on the most effective regulation of digital assets. And these two are members of the same agency! Between federal, state, and international agencies, it is a constant push, pull and gun-sling for jurisdiction over the regulation of a $3 trillion market.[3] Current investors, and the fate of the future of finance, are currently caught in the middle of the saloon fight with little direction or clarity.

Digital assets are becoming increasingly utilized with more legitimacy within the economy.[4] They have the potential to supplement or replace traditional currencies and financial institutions.[5] Long term stability of the global financial system will require effective monitoring of digital assets and their transmission to protect investors, ensure lawful use, secure equitable treatment for this asset class in transactions, and punish actors who seek to use digital assets for illicit purposes.

Without appropriate compliance policies for transmitters and protocols, the use of digital assets contains significant risks for money laundering and terrorist financing.[6] These include Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) controls, as well as Know Your Customer (KYC) procedures so that transmitters know exactly who the money is coming from, where it is going, and for what purposes.[7]

A key feature of digital assets is their decentralized nature. They are supranational, defying borders and the regulations within them. For this reason, it is ineffective for governments to regulate digital assets in a vacuum. Countries must determine common policies to increase cohesion between regulatory regimes and avoid firms shifting their business to jurisdictions where oversight is relatively lax.

The Financial Action Task Force (FATF) is an inter-governmental, standard setting body that works with governmental bodies to combat money laundering and terrorist financing.[8] FATF Recommendations are published to assist governments in determining best practices for the reduction of conduct by illicit actors in their financial systems.[9] Recommendations include common definitions of various concepts, archetypes for AML/CFT/KYC policies, and standards for application and enforcement.[10] In addition to publishing recommendations, FATF holds governments accountable to implement sound policies to provide for greater safety within financial systems. FATF works closely with regulators from the U.S. and other nations to achieve its goals. 

The most effective regulations will come from international cooperation with firms that engage in digital asset conduct. The SEC, in a speech by Commissioner Peirce, has made it clear that they welcome input from those “who will be subject to and protected by the rules” in order to increase the transparency of the regulatory process.[11] FATF should follow suit in this endeavor.

            The Wild West was defined by toughness, speculation, and chaos, but most of all passion. Success was varied and deception was common. Just like the cowboys and outlaws were convinced that law and order would be more beneficial to their enterprise than a haphazard societal order, so too should digital asset firms and users. In fact, most interested parties welcome increased regulation, so long as it is clear and rational.[12] It is incumbent upon the international community to create this clarity. A regulatory ecosystem that is comprehensive, cohesive, and direct will elevate the digital asset environment from the “lawless” Wild West to a new frontier.

Adam Fink is a staff member of Fordham International Law Journal Volume XLV.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.
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[1] Compare Gary Gensler, Chairman, Sec. and Exch. Cmm’n, Remarks Before the Aspen Security Forum (Aug. 3, 2021) with Hester M. Peirce, Comm’r, Sec. and Exch. Cmm’n, Lawless in Austin (Oct. 8, 2021).

[2] See id.

[3] See Dean Seal, Crypto Industry Should Brace for Brewing Enforcement Storm, Law360 (Nov. 10, 2021), https://www.law360.com/articles/1439431/crypto-industry-should-brace-for-brewing-enforcement-storm.

[4] See Stan Choe, Wall Street Looks to Cash in as Bitcoin Goes Mainstream, Bloomberg (Oct. 19, 2021) https://www.bloomberg.com/news/articles/2021-10-19/as-bitcoin-goes-mainstream-wall-street-looks-to-cash-in.

[5] See id.

[6] See Press Release, Sec. and Exch. Cmm’n, Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014) https://www.sec.gov/oiea/investor-alerts-bulletins/investoralertsia_bitcoin.html.

[7] See Dan Ryan, FinCEN: Know Your Customer Requirements, Harv. L. Sch., (Feb. 7, 2016) https://corpgov.law.harvard.edu/2016/02/07/fincen-know-your-customer-requirements/.

[8] See Who We Are, Fin. Action Task Force,  https://www.fatf-gafi.org/about/.

[9] See id.

[10] See id.

[11] Hester M. Peirce, Comm’r., Sec. and Exch. Cmm’n., Lawless in Austin (Oct. 8, 2021) See Peirce, supra note 1.

[12]  See id.