SEC Chairman Gary Gensler testifies before a Senate Banking, Housing and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill Washington, USA, on September 14, 2021.
Evelyn Hockstein | Reuters
President of the Securities and Exchange Commission Gary Gensler said on Monday that his agency aims to exercise increased regulatory oversight of the $2 trillion cryptocurrency market to protect investors from a spate of scams.
in a speech delivered virtuallyGensler said the SEC plans to register and regulate crypto platforms, including working to separate custody of assets to minimize risk.
โThese crypto platforms perform similar functions as traditional regulated exchanges,โ Gensler said, speaking at the Penn Law Capital Markets Association annual conference. "So investors need to be protected in the same way."
Gensler provides details on his plans to tackle the cryptocurrency market nearly a month after President Joe Biden signed a executive order calling on the government to examine the risks and benefits of cryptocurrencies. Last year, more than $14 billion worth of crypto assets were stolen through a lots of scams as well as cyber attacks.
The SEC, Gensler said, will partner with the Commodity Futures Trading Commission to address platforms that trade crypto security tokens and commodity tokens, as the SEC currently only oversees those that trade securities.
Gensler compared crypto asset platforms to alternative trading systems, which are used in the equity and fixed income markets. The critical difference, he said, is that the latter is mainly used by institutional investors, while crypto platforms "have millions and sometimes tens of millions of retail customers who buy and sell directly on the platform without going through a broker." .
He said the SEC will investigate whether his agency should treat crypto platforms more like retail exchanges.
Gensler also addressed what the SEC can do in the areas of stablecoins and crypto tokens.
Stablecoins are digital currencies designed to be less volatile than cryptocurrencies by pegging their market value to a foreign asset like the US dollar. Gensler said the $183 billion stablecoin market raises concerns, such as potential use in illegal activities. Crypto-to-crypto transactions, he said, allow users to bypass the traditional banking system, making it difficult to track money laundering, tax, and compliance.
Stablecoins are also often owned by crypto platforms, creating potential "conflicts of interest and market integrity issues that would benefit from increased oversight," Gensler said.
Regarding crypto tokens, the SEC chief said that most of them involve entrepreneurs raising money from outside investors in hopes of creating a profitable business. Traditional companies that raise capital from the public in this way have to take the extra step of filing significant disclosures with the SEC.
Gensler reiterated comments made by his predecessor, Jay Clayton, who said that โmost crypto tokens are investment contracts under the Howey test.โ He was referring to a 1946 Supreme Court ruling that a transaction is an investment contract when people are putting money into a "joint enterprise with a reasonable expectation of profit from the efforts of others," Gensler explained.
He added that regulators have long had effective ways of regulating financial markets, and the rise of new technology doesn't mean we're throwing out the playbook.
"We should apply these same protections in crypto markets," Gensler said. "Let's not risk undermining 90 years of securities laws and creating any regulatory arbitrage or loopholes."
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