Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), told US lawmakers that he wants to work with other regulatory agencies and the Congress to “fill in the gaps of investor protection in these crypto markets,” indicating that the SEC may soon develop tighter regulations for the sector.
The regulatory tsar made the remarks in his recent testimony before the Subcommittee on Financial Services and General Government of the Appropriations Committee at the US House of Representatives, the lower chamber of the country’s parliament, where he reiterated his opinion that cryptocurrencies are a “highly volatile and speculative asset class,” and that many tokens are investment contracts that fall under the country’s securities law.
“The SEC has been consistent in its communication to market participants that those who use initial coin offerings to raise capital or to engage in securities transactions must comply with the federal securities laws. Asset managers that invest in these assets may come under securities laws, too,” Gensler said, adding that there were many “challenges and gaps for investor protection in these markets.”
Given that none of the crypto exchanges has to date registered as an exchange with the SEC, its Chair claimed that the regulation has resulted in “substantially less investor protection” than in the traditional securities markets, as well as to “correspondingly greater opportunities for fraud and manipulation” – leading the SEC to prioritize “token-related cases involving fraud or other significant harm to investors.”
There is another problem stemming from the coins being traded on unregistered crypto exchanges, he argued. Commenting on the value of the global crypto assets market, Gensler said that while the reported trading volume in recent weeks has ranged from USD 130bn to USD 330bn per day, these figures are not audited or reported to regulatory authorities because the exchanges are not registered with them.
“That is just one of many regulatory gaps in these crypto asset markets,” he said.
Decentralized finance (DeFi) has also found itself in the SEC’s regulatory crosshairs, as these types of platforms “raise a number of challenges for investors and the SEC staff trying to protect them,” he said.
Gensler further added that the SEC is “seeking comment on crypto custody arrangements by broker-dealers.”
The testimony would suggest that Gensler, who was sworn into office last April, aims to seek cooperation with other regulators and lawmakers to impose more stringent regulations of the crypto markets – contrary to what the Cryptoverse had hoped from the allegedly ‘pro-crypto’ new SEC leader – and is yet another indication of his distrust of cryptocurrencies.
Earlier this month, Gensler said that bitcoin (BTC) was a speculative and volatile store of value, but that the cryptocurrency does not fall under the SEC’s authority, as it is considered a commodity and not a security.
However, he also stated that “a lot of crypto tokens — I won’t call them cryptocurrencies for this moment — are indeed securities.”
One of the most famous, long, and ongoing battles with the SEC witnessed by the Cryptoworld is that between the regulator and blockchain company Ripple over the SEC’s claim that the Ripple-affiliated XRP coin is an unregistered security.
Meanwhile, Gensler also noted an increase in private companies accessing public markets via direct listings, noting that the SEC has approved recently listing rules filed by exchanges for primary direct listings, where companies can sell shares directly on exchanges without a traditional underwritten public offering. “This may be an important mechanism that calls upon SEC resources,” he said.
In the crypto space, the most notable recent direct listing was that of major crypto exchange Coinbase.
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