Financial Regulation in the U.S.: An Overview

The financial services industry in the U.S. is one of the most highly regulated industries in the world. There is a complex and overlapping mixture of regulators at both the state and federal levels. Banks and other financial entities shoulder a considerable burden to constantly remain up to date and in compliance with the rules. Despite this, some within the cryptocurrency industry decry a lack of regulatory clarity.

Regulatory Responsibilities

The primary responsibilities of the diverse financial service regulators may differ. Still, as a group, they work to ensure the safety and stability of what is the leading global environment for financial services. The regulators view themselves as guardians of market participants, especially consumers, and collectively they do not respond well to companies who seek to weaken the environment under their watch.

Conflict with the SEC

One such example of a provocative act is outlined in the 2022 Coinbase Global Annual Report. Coinbase offers “a trusted and easy-to-use platform for accessing the broader crypto economy.” Hence, they barely mention that they conflict with a key U.S. regulatory agency – the SEC. Coinbase does not hold the appropriate licenses and permissions to list security products. Within the annual report are several pages of discussion on risks associated with the potential classification of crypto-assets as securities. During those disclosures, they mention that in a July 2022 court filing, the Securities and Exchange Commission (SEC) determined that seven crypto-assets listed on their platform were unregistered securities (AMP, RLY, DDX, XYO, RGT, LCX, POWR). Despite the unequivocal position from the SEC, Coinbase has decided to disregard the SEC analysis and official position. Instead, Coinbase continues to trade these unregistered securities as it awaits a determination by a federal court.

Custodia Bank vs. the Federal Reserve

Under very different circumstances, the crypto-bank Custodia filed a lawsuit against the Federal Reserve in 2022. A special purpose depository institution chartered by the state of Wyoming, Custodia was seeking membership in the Federal Reserve system and access to the Federal Reserve Payment system. However, the Federal Reserve denied Custodia’s application becausebusiness model was not compatibincompatiblederal Reserve’s mission and goals. Custodia is now seeking a court order to compel the Federal Reserve to accept its application.

Related Facts

• The U.S. has more than 100 financial services regulators.
• The SEC is the primary federal securities law regulator in the U.S.
• Coinbase conflicts with the SEC over the listing of unregistered securities.
• Custodia Bank is suing the Federal Reserve to access the Federal Reserve Payment system.

Key Takeaways

• The financial services industry in the U.S. is heavily regulated.
• The SEC is the primary federal securities law regulator in the U.S.
• Coinbase conflicts with the SEC over the listing of unregistered securities.
• Custodia Bank is suing the Federal Reserve to access the Federal Reserve Payment system.

Conclusion

The financial services industry in the U.S. is heavily regulated, and the regulators view themselves as guardians of market participants, especially consumers. As a result, companies that seek to weaken the environment under their watch often receive an aggressive response. Coinbase and Custodia Bank are two companies that have taken a provocative stance against U.S. regulators in recent years.