Crypto firms snap up ex-regulators, but some struggle to keep them

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Former regulators at the heart of mainstream US financial markets over the past decade are wrestling with new roles in the fast-changing cryptocurrency industry, with some key appointments lasting just months in the job.

In the past six months, crypto firms have snapped up officials from every corner of the byzantine US regulatory network, keen to prepare for a potentially tighter set of rules for an industry that has so far slipped through the cracks while drawing in billions of dollars from consumers and funds.

Jay Clayton, who chaired the US Securities and Exchange Commission from 2017 to 2020, became the latest former official to turn to the crypto industry when he joined the advisory board of cryptocurrency infrastructure company Fireblocks in August, as well as taking on an advisory role at One River Digital Asset Management in March.

But some of Clayton’s former peers who made the move into crypto have struggled to figure out where they fit in to a more freewheeling environment.

This week Chris Giancarlo, the former chair of derivatives market regulator the Commodity Futures Trading Commission, stepped down from his role on the board of BlockFi, a crypto lending platform, four months after taking on the position. 

Brian Brooks, former head of the OCC banking regulator, resigned in August from his role as US chief executive of Binance after just three months. Brett Redfearn, a former high-ranking SEC official, spent four months in a role at Coinbase, the listed crypto exchange, before also leaving in August.

The quick departures reflect the tension facing former regulators as they dip their toes in this still young industry, drawing on their experience of introducing and enforcing new rules to a market facing increasingly loud calls for regulatory intervention.

For Giancarlo, a long-term advocate of cryptocurrencies, the decision to step down comes as he has tried to streamline his involvement in the industry and focus on fewer projects, he told the Financial Times. He will remain as an informal adviser to BlockFi, but intends to devote more attention to his Digital Dollar Project, which explores creating a US central bank digital currency, while at the same time publicising his upcoming book on the topic.

“It is a challenge for regulators to find what their right point of engagement with this market is and I think all of us need to think about our priorities,” Giancarlo told the FT.

Brooks’ departure came for different reasons. He cited “differences over strategic direction”, wishing his former colleagues at Binance “much success”, when he announced his resignation on Twitter. His decision came at a time when Binance faces increasing regulatory scrutiny around the world.

Redfearn told the Financial Times he also left due to strategic shifts. Coinbase had hired Redfearn to work on digital-asset securities, which would be largely captured by existing securities regulation, unlike some cryptocurrencies such as bitcoin, which regulators consider a commodity. Coinbase decided to move away from the project, leading to Redfearn’s departure.

“We recently deprioritised digital asset securities,” said a Coinbase spokesperson. “In light of this, Brett Redfearn decided to pursue other opportunities in capital markets and securities.”

The regulatory push in crypto markets has gained fresh impetus from an explosion in crypto trading over the past 18 months and the appointment of Gary Gensler as chair of the Securities and Exchange Commission. Gensler, the firebrand regulator responsible for implementing the 2010 Dodd-Frank Act at the CFTC and tightening rules on the off-exchange derivatives industry, quickly called for new powers to oversee crypto exchanges and assets.

This has prompted major exchanges in the rapidly growing crypto derivatives space to bolster compliance teams as attention on the now $2tn industry intensifies.

FTX, which bought the CFTC-regulated LedgerX platform on August 31, appointed Gensler’s former counsel Ryne Miller as its new general counsel in recent weeks. FTX is one of the largest marketplaces for cryptocurrency derivatives.

“Miller’s main objective will be to ensure FTX.US remains responsive to, and compliant with, emerging US and global regulatory policies,” FTX said at the time.

Binance, the largest exchange for derivatives contracts on digital assets, said it aimed to become “a leader in regulatory compliance” when it hired Richard Teng, a former chief executive of the Financial Services Regulatory Authority at Abu Dhabi Global Markets who had previously spent more than a decade working for the Monetary Authority of Singapore.

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Other high profile hires remain in the crypto industry. Mark Wetjen, Gensler’s successor at the CFTC, joined MIAX, an exchanges operator, in January 2020 to head up its expansion into futures and digital products.

The influx of former regulators is the latest wave of experienced financial markets staff crossing over to digital asset markets, where fast-paced growth has been luring in bankers for years. The potential regulation of crypto is seen as similar to the effort to regulate the derivatives industry after the global financial crisis, with many who worked on new rules a decade ago now moving into the new market.

“I see this as incredibly similar to what we did with the derivatives industry after 2008,” said one former banker who has moved into the crypto world. “It’s the same movie again. The legitimacy of this asset class continues to build and we’re all just figuring out how we can apply our experience to it.”

Additional reporting by Michael Mackenzie in New York