SEC Chief Reiterates Call for Cryptocurrency Regulation

When Securities and Exchange Commission (SEC) chairman Gary Gensler took up his current position in April, the crypto industry expected a change in the federal agency’s stance – which was hostile during his predecessor’s tenure – towards cryptocurrencies and digital assets. He let her down.

The central theses

• SEC chairman Gary Gensler criticized the crypto industry during his testimony in the Senate on Tuesday.
• He said that DeFi is only decentralized in name and that “a great many” tokens traded in the crypto markets are securities.
• Gensler also made it clear that despite his criticism, he is not negative about cryptocurrencies.
• He said his agency was understaffed and could use more resources.

Not only has Gensler raised new concerns and labeled the industry “a wild west,” but he has used every opportunity to push his case for bringing the industry under his agency’s oversight. In his testimony to the Senate Banking Committee on Tuesday, the SEC chief repeated these issues and called for the unruly industry to be brought under his supervision.

A critical assessment

Most of Gensler’s assessments of the state of affairs in the cryptocurrency industry have been negative. According to the SEC chief, only a “small number” of the cryptocurrencies currently traded on the crypto markets are not securities. “Very many,” said Gensler. These include stablecoins, a type of cryptocurrency whose price is pegged to a fiat currency or basket of assets to minimize price fluctuations.

When asked about his justification for categorizing stablecoins as securities, Gensler referred to the “35 different things” defined as securities in the 1933 Securities Act. While the cryptocurrency industry is fixated on the Howey test, as outlined in a Supreme Court ruling on the definition of securities, the law actually defines securities in several forms, including investment contracts, collateral trust deposits, and certificates of deposit.

Decentralized financial or DeFi tokens and services have grown in popularity this year. However, Gensler said the services are decentralized in name only and that usage agreements for such services obscure additional fees and charges that are not obvious to the customer. He said DeFi and crypto tokens are a “highly speculative asset class” and agreed with Massachusetts Democrat Senator Elizabeth Warren that high and unpredictable fees on DeFi services “could make crypto dangerous.”

During the hearing, Gensler also targeted Coinbase, North America’s largest cryptocurrency exchange by trading volume. Brian Armstrong, CEO of Coinbase Global, Inc. (COIN), accused the SEC last week of “really sluggish behavior” for refusing to reveal their reasons for categorizing tokens in their credit product as securities. He had also said the agency was creating “an unfair market” by threatening to sue crypto exchanges.

Gensler said the exchange “could have dozens of tokens that are securities” in its trading markets. “But she [Coinbase] are not registered with the SEC, “he added, which means Coinbase is not subject to the same disclosure regime as other trading exchanges registered with the agency.

Despite his relentless criticism of the crypto industry, Gensler made it clear that he was not “negative or minimalist” about cryptocurrencies. “I fear that if the field I studied at MIT for 3.5 years is left outside the public policy framework for combating money laundering (AML), investor protection and tax fraud … it will not exist,” said he.

More funding and coordination needed

Although he advocated stronger crypto oversight, Gensler also asked for more funding for his agency. He came to the agency at a critical time. Technology has made the previous rules for capital market formation inadequate, and the advent of meme stock traders has turned investor protection on its head. According to Gensler, his agency is currently working on 6,000 projects and is scarce. “Financially we could use a lot more people,” he said.

When it comes to cryptocurrencies, better coordination is needed between market regulators, he said. For example, creating a regulatory framework for stablecoins might require his agency to coordinate its efforts with the banking agencies. “And then there are some things in the weeds, like infrastructure and custody [for digital assets]I think we can work with Congress to sort this out, “said Gensler.

source https://www.bisayanews.com/2021/09/24/sec-chief-reiterates-call-for-cryptocurrency-regulation/