Most crypto firms complain there are too many regulatory bodies globally and particularly in the U.S., and protest that this overlapping and even contradictory regulation stymies growth and innovation. The “alphabet soup” of U.S. federal regulatory bodies – the SEC, CFTC, DOJ, FDIC, FTC and IRS, to name a few – is just the beginning.

At the state level, there are 50 attorneys general to contend with, not to mention the various state agencies and regulators that enforce the myriad of laws passed by state legislatures and applied by the courts. Digital currency has no borders, and while regulators do, they can extend their regulatory reach if markets, consumers and institutions in their jurisdictions are impacted.

Donna Parisi is the Global Head of Financial Services and FinTech at law firm Shearman & Sterling. Sandra Ro is a former derivatives banker and market infrastructure executive and the CEO of the Global Blockchain Business Council, a Swiss industry non-profit building the next multi-trillion dollar industry through partnership, education, and advocacy.

Some crypto startups and fintech leaders have advocated for a new regulatory body that would supersede these myriad of regulators, as a way to streamline regulatory compliance and reduce overlap between competing agencies. The Financial Conduct Authority (FCA), in the U.K., is frequently cited as an example of a central superseding agency that recognizes and promotes innovation through its policies, and many have advocated for a parallel agency in the U.S. Some fintech leaders have even threatened to leave the U.S. entirely, and relocate to friendlier regulatory regimes in the U.K. or elsewhere.

No question, it is painful and costly today for young crypto startups and even mature fintechs to navigate the matrix of federal and state regulations. But despite the seemingly chaotic and burdensome regulatory structure, the U.S. system provides confidence to both investors and consumers.

This approach to regulation of digital assets allows innovation to flourish by preventing fraud, unhealthy speculation and asset bubbles. To spark innovation and stay competitive with other international markets, U.S. regulators need to reduce “grey areas” so more fintechs and entrepreneurs can clearly navigate the rules of the road. The problem is not the many regulators in the U.S. but rather this lack of clarity and overlapping regulations.

The many U.S. regulatory bodies are creatures of different laws that were passed in response to different national crises – the Office of the Comptroller of the Currency (OCC) was integral to the development of a national banking system to finance the Civil War, the Securities and Exchange Commission (SEC) and Federal Deposit Insurance Commission (FDIC) were established in the wake of the Great Depression, and the Financial Stability Oversight Council was part of the reforms under the Dodd-Frank Act. What has been inherited is a complex regulatory landscape with many different regulators and statutory mandates. For example, whereas the SEC and Consumer Financial Protection Bureau (CFPB) are principally charged with investor and consumer protection, the U.S. federal banking agencies are focused on the safety and soundness of banking institutions and the stability of the financial system itself.

Despite the seemingly chaotic and burdensome regulatory structure, the U.S. system provides confidence to both investors and consumers.

bank regulators from 49 states released a plan to streamline compliance examinations for money service businesses (MSB). This will save time and money for both the companies and the regulators, and makes it easier for MSBs to do business across the U.S. This model of a collaborative approach gives us a roadmap to achieve better and more efficient regulation across the U.S.. Applying this same spirit of collaboration to other areas like KYC processes, capital raising and passporting licenses would similarly reduce frictions and allow for compliant, seamless and less costly ways for startups to do business. A collaborative approach is also more likely to weather shifting political winds, avoiding partisan squabbling that has hobbled the work of the CFPB, for example.

We do not need a new super-regulator for digital currency. Instead, we need to improve communication and collaboration among regulators, entrepreneurs, investors and banks. Doing so will strengthen oversight, protect consumers, maintain market integrity and, perhaps most important, lead to a financial system that is better equipped to meet the challenges of the future.

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