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Winklevoss twins propose cryptocurrency self-regulatory organization

Cameron and Tyler Winklevoss, the co-founders of cryptocurrency exchange Gemini and twins of Facebook Inc. fame, have proposed creating an industry-sponsored self-regulatory organization for the U.S. virtual currency space.

Their proposed self-regulatory organization, or SRO, called the Virtual Commodity Association, would ensure that its members comply with a number of "sound practices," including cyber- and information security, as well as transparency and cooperation with regulators. It would facilitate periodic examinations of its members, impose agreed-upon sanctions where members fail to comply with its rules and interact with regulators and legislators.

Creating a regulatory structure for cryptocurrency exchanges could help give the space, widely viewed as a "wild, wild west," more credibility. National stock exchanges and the Financial Industry Regulatory Authority, or Finra, are currently SROs.

"The SRO approach has historically worked to protect and police various markets," the brothers said in their blog post announcing the proposal. "We believe a thoughtful SRO framework that provides a virtual commodity regulatory program for the virtual commodity industry is the next logical step in the maturation of this market."

The proposal comes as regulatory uncertainty hangs over the decentralized cryptocurrency space. The SEC issued a March 7 warning that cryptocurrency exchanges are not properly registered to trade securities, a term the regulator has said applies to most, if not all, initial coin offerings, or ICOs. In a conference presentation the same day, U.S. Commodity Futures Trading Commission Commissioner Brian Quintenz called for an SRO in the virtual currency industry, saying that organizations representing the industry's needs could "significantly contribute" to efforts to formalize regulation.

But historically, cryptocurrencies and ICOs have faced an alphabet soup of regulators.

The Virtual Commodity Association would be a nonprofit, independent regulatory organization that does not operate any markets. It would be a trade association that would not provide regulatory programs for security tokens or security token platforms. The Winklevoss brothers suggested that the SRO be governed by a board of directors and funded by member fees.

It would be open for membership to virtual commodity platforms, over-the-counter trading firms and platforms or off-exchange services that transact in the spot virtual commodity markets.

The Winklevoss brothers are not the first to propose such a regulatory framework. A collective of 16 government-registered cryptocurrency exchanges in Japan are already drawing plans to create such an organization in their home country, according to a Reuters report.