The head legal counsel of crypto exchange Coinbase recently addressed concerns that the newly formed Crypto Rating Council will become compromised due to the interests of the founding parties.
Cryptocurrency exchanges led by Bittrex, Coinbase, and Kraken announced on Monday that they were creating the Crypto Rating Council (CRC). The initiative will reportedly categorize which digital currencies are securities.
The CRC will use a rating scale that ranges from one to five. A scale of one means a clear non-security asset like Bitcoin, Dai, and Litecoin. Meanwhile, a five rating will be given to assets deemed as clear securities. But what those assets are weren’t publicly disclosed. However, several assets fall in the middle, including Augur, EOS, Ethereum, Maker, and XRP.
Point-Based and Scalable System
Coinbase explained previously that the assessments developed by the CRC were designed to be a rating system that’s point-based and scalable. It utilizes a set of yes-no questions that have been devised based on the classification guidelines of the Securities and Exchange Commission (SEC) of the United States.
Reactions to the planned initiative has been mixed. Some have a positive view of the idea behind the CRC while others criticized the way it was launched. There are also those who are skeptical that the council will actually sway the opinions of regulators.
Brian Brooks, Coinbase’s head legal counsel, addressed some of the concerns during an interview with The Block. Brooks told the crypto-focused media outlet that the ratings of the CRC should not be considered as legal advice.
Fair Lending Wiz and the Hummingbird
He explained that the ratings council was basically an automated compliance tool and noted that there are many of these in the financial services industry. He gave as examples the Fair Lending Wiz and the Hummingbird. The former is used for complying with fair lending while the latter is for AML compliance.
Brooks pointed out that the CRC evaluations don’t embody any investment advice as the council isn’t rating the value or quality of the digital assets. The only thing the CRC is concerned about is the assets’ security status.
Brooks reiterated his statement on Twitter and said CRC members are not giving legal advice and encouraged people to think of the council’s efforts as the basis for an automated compliance tool.
Brooks also tried to allay fears that the interest of private parties could compromise the ratings. He said that many assets have been given a 5 rating, which means they’re likely to be classified as security. He added that the point of the council is to get clarity, and not to justify the status of assets that are considered as unregistered securities.