The Securities and Exchange Commission (SEC) is putting the pressure on broker-dealers and exchanges to implement its ambitious Consolidated Audit Trail (CAT). The overhaul efforts could seriously push back any cryptocurrency-related approvals and regulations for the foreseeable future.
While everyone in the cryptocurrency space is waiting on the SEC to approve blockchain-related broker-dealers and security token offerings, it seems that the regulatory agency has its sights set first on bigger fish. It is in the process of reworking the entire auditing system for the traditional financial world.
SEC Battling on Multiple Fronts
SEC Chief Jay Clayton has been battling with other regulators and traditional exchanges over their slow implementation of the Consolidated Audit Trail (CAT), the Wall Street Journal reports. The CAT system was first conceptualized after the Dow Jones flash crash in 2010 when the index dropped some 1,000 points and rebounded in minutes.
The purpose of the CAT is to ‘track orders throughout their life cycle and identify the broker-dealers handling them, thus allowing regulators to more efficiently track activity in Eligible Securities throughout the U.S. markets.’
FINRA and the SEC have been pushing for exchanges to implement the CAT ever since, but it’s been a slow process. Large brokers are now expected to report trades in the new database by April 30, 2020. Moreover, penalties will be put in place for parties who do not comply or face losing 25% of the fees they are entitled to get while running the CAT.
The new system is expected to cost some $135M annually and will largely be funded by the fees collected by brokerages. Some members of the new ‘CAT consortium’ include the New York Stock Exchange, Nasdaq Inc., and Cboe Global Markets Inc.
Losing Focus on Cryptocurrency Markets
This summer has been a frustrating time for cryptocurrency companies waiting for SEC approvals. Up to 40 blockchain-related broker-dealers are currently in limbo, awaiting the green light from the regulatory agency. In a statement released on July 8, the SEC’s Division of Trading and Markets and FINRA argued that the delay is due to an altogether new criteria needed for these approvals.
The ability of a broker-dealer to comply with aspects of the Customer Protection Rule is greatly facilitated by established laws and practices regarding the loss or theft of a security, that may not be available or effective in the case of certain digital assets,” the statement reads.
Since then, we have heard close to nothing from the SEC on this front. However, it now seems clear that the regulatory agency likely has its hands tied from dealing with its primary responsibility which is regulating traditional financial markets. Given the slow pace of implementation, and Clapper’s frustrations, we could see cryptocurrencies further pushed back on the agenda until this is sorted out fully.
Do you agree that cryptocurrencies are currently a secondary priority for the SEC until it implements further regulations on traditional markets? Let us know your thoughts below in the comments.