One-Way Lane: Crypto Firms Hire Top Regulators, while SEC Struggles to Find Staff

As crypto shifts ever closer to the mainstream, in not only finance, but also in sectors as diverse as art, social networks, and gaming, it becomes increasingly important that regulatory requirements are addressed.

This is a two-way process, in which crypto organizations make an effort towards compliance, while financial authorities and political bodies tailor regulations to meet the unique characteristics of blockchain development. This movement from the authorities towards understanding and incorporating crypto is most apparent in the EU, through MiCA: a work in progress, but still, the world’s first comprehensive framework for meaningful crypto regulation.

And, in the US, legal wrangles between the SEC and various crypto entities (including Ripple Labs and Coinbase) may have been antagonistic in nature, but still represent an inevitable meeting between crypto companies and regulatory bodies, and what’s more, this is all taking place while a multitude of investors wait on the outcome of filings to launch spot BTC ETFs.

From this perspective, it makes sense that crypto companies may seek to ease the process of ensuring regulatory compliance by hiring former regulators, and that is, in fact, exactly what has been taking place.

Meanwhile, a recent report by the Office of Inspector General at the SEC detailed a unique problem that agency in particular has when it comes to hiring crypto specialists, stating that: "Many qualified candidates hold crypto assets, which the Office of the Ethics Counsel has determined would prohibit them from working on particular matters affecting or involving crypto assets. This prohibition, according to SEC officials, has been detrimental to recruiting, as candidates are often unwilling to divest their crypto assets to work for the SEC."

Fireblocks Hires Former NYDFS Regulator

The New York Department of Financial Services (NYDFS) is in charge of ensuring that financial services and products are properly regulated, and this month, a former NYDFS employee was hired by Fireblocks, which is an enterprise-grade platform delivering digital asset infrastructure for trading desks, exchanges, banks, and other entities.

Fireblocks has been named Best Technology Infrastructure for Blockchain at the PAY360 Awards! We are honored to be recognized for our commitment to helping PSPs integrate digital asset treasury operations with day-to-day financial activities on a secure platform where they can… pic.twitter.com/lYpApFY1Ou

— Fireblocks (@FireblocksHQ) October 18, 2023

Peter Marton was formerly the Deputy Superintendent of Virtual Currency at the NYDFS, and will become the Director of Digital Identity at Fireblocks, reporting to Chief Legal and Compliance Office Jason Allegrante.

Marton’s background is in digital asset compliance, and Allegrante stated of the appointment:

“Peter’s exceptional experience developing regulatory frameworks at one the world’s preeminent virtual currency units should prove invaluable as we undertake the development of on-chain identity and programmable compliance solutions that will transform the digital and financial markets and help set the standards for safety, soundness, and consumer protection.”

Evidently, Fireblocks is aiming to make the connection between traditional finance and crypto solutions, and as such, security is paramount. Towards that end, Marton himself explained that:

“Joining Fireblocks offers an unparalleled opportunity to bridge the gap between regulatory compliance and technological innovation. On-chain digital identity and smart contracts are fundamental building blocks for a secure and accessible digital asset ecosystem.”

Alongside Marton, Chaitanya Reddy Konda, who previously designed and built the Ethereum privacy solution Nightfall, will also be joining Fireblocks as Senior Technical Product Manager, a position in which she will be focused on enhancing security.

Other Moves From Regulation to Crypto

Marton’s appointment at Fireblocks is not unique, and forms part of a trend towards former highly ranked employees in the regulatory sector migrating across to the crypto industry. Some previous, similar hires include the following.

Brian Brookes at Hashdex

Brian Brookes was formerly the Senior Deputy Comptroller at the Comptroller of the Currency (within the US Treasury Department), and was a Member of the Board at FDIC. From there, he took on roles at crypto companies, including as the Chief Legal Officer at Coinbase, and as the CEO at both Binance.US (very briefly) and Bitfury.

This year, Brookes joined the Board of Directors at Hashdex, where he will advise on global regulation with a view to attracting institutional investors and working strategically with public policymakers.

Heath Tarbert at Circle

The USDC issuer Circle brought Heath Tarbert on board earlier this year, to act as the Chief Legal Officer and Head of Corporate Affairs. Tarbert was formerly the Chair and Chief Executive at the CFTC, and went on, prior to joining Circle, to act as the Chief Legal Officer at Citadel Securities.

Notably, Tarbert’s previous experience also includes positions at the US Treasury Department and with the World Bank, and upon appointment, Circle's CEO, Jeremy Allaire cited Tarbert’s “global regulatory experience.”

Coinbase Asset Management

One River Digital Asset Management was acquired by Coinbase earlier this year and subsequently became Coinbase Asset Management. Prior to these changes, the digital asset manager made several influential hires from other sectors, including former SEC chair Jay Clayton; the former Assistant to the US Secretary of Commerce Jon Orszag; and a senior advisor in the Trump administration Kevin Hassett.

Of these figures, Jay Clayton also works on the Board of Advisors at the initially mentioned Fireblocks, and he’s Chair of the Executive Committee at Apollo Global Management.

Connecting Crypto, Regulators, and Politics

The individuals above mentioned here are by no means a comprehensive list, and it’s notable that these figures from the political sphere have also become involved in crypto, including, for example, former US senators Max Baucus and Patrick Toomey, at Binance and Coinbase, respectively.

There is also the straightforward issue of salary, with private sector salaries at crypto companies tending to compare favorably to salaries at regulators in the public sector.

What we appear to be witnessing, then, is a straightforward pragmatic approach from major crypto entities. If regulatory and political bodies are the next obstacles for crypto to navigate, then it’s advantageous to have experienced, connected, and influential figures from the worlds of regulation and policymaking on board.

We can also see a network forming, and pathways being established to link up these sectors, crypto companies, regulators, and political bodies, in order that compliance can be achieved as smoothly as possible.

Some observers might question the ethics involved if the connections are too cozy, but that’s a separate debate. From a practical point of view, a maturing crypto industry is taking logical measures, and currently, as those much-anticipated BTC ETFs shift into focus, it looks like an approach that might pay off.