Gary Gensler, Chairman of the Securities and Exchange Commission (SEC), is at it again, ruffling crypto industry feathers. Gensler, who has been chastised for his views on industry regulation, appears to be raising issues once more. However, the SEC Chairman appears to be taking a more moderate stance on cryptocurrency regulations this time.
Separating Security Tokens from Commodities
At the Practising Law Institute’s SEC Speaks conference on Thursday, Gary Gensler stated that his SEC is actively working on developing a regulatory framework for trading platforms and investors looking to invest in cryptocurrency. The policymaker explained that the SEC’s core principles should apply to all investable securities, including those available in the budding crypto market.
According to Gensler, the vast majority of the nearly 10,000 cryptocurrencies available on the market today are, in fact, securities. As a result, any offers or sales of these coins must comply with the SEC’s securities laws. While Gensler admitted that there are coins that do not meet the SEC’s definition of “security”, these assets depict only a small portion of the available coins in the market – even though they may represent a larger portion of the market’s overall value.
Gensler’s remarks were eerily similar to his previous thoughts on the possible classifications of specific assets. For example, the SEC Chairman stated previously that Bitcoin is a commodity that should be regulated by the Commodity Futures Trading Commission (CFTC) rather than the SEC.
In addition to his belief that digital assets require better regulation, Gensler’s speech alluded to the need for greater oversight of industry players and improved collaboration with Congress and the CFTC.
The policymaker also stated that the SEC would be looking to strengthen oversight of cryptocurrency exchanges operating in the country. Because most of the market’s available assets are considered securities, exchanges offering these assets to investors would be asked to register with the SEC.
Brokers are crypto intermediaries who buy and sell crypto security tokens on behalf of others, while dealers buy and sell them for themselves. According to Gary Gensler, they should be subject to SEC oversight in either case.
Simultaneously, Gensler alluded to the SEC’s oversight of decentralised finance (DeFI) protocols and decentralised autonomous organisations (DAOs). As he explained, platforms that provide lending functions in exchange for a fee should be subject to SEC oversight if they offer and sell securities.
Regulation Requires Clarity
Overall, Gensler’s speech indicated a desire to improve crypto oversight – not just by the SEC but also by the CFTC and other financial regulators. The agency has also begun to take its role more seriously, with its current legal dispute with Ripple Labs over the company’s ICO for its XRP token serving as a foreshadowing of what is to come.
Simultaneously, the SEC is embroiled in a legal battle with Coinbase, North America’s largest exchange. The agency sued Ishan Wahi, a former product manager at the exchange, and two of his associates for insider trading months ago. Soon after, the SEC turned its attention to Coinbase, implying that the exchange could face enforcement action for selling unregistered securities to Americans.
The SEC’s approach has received both praise and criticism thus far. Many people are relieved that the agency appears to be taking cryptocurrency regulation more seriously. Others, including Caroline Pham, one of the CFTC’s five commissioners, have labelled it a clear-cut case of regulation by enforcement.
Whatever the case, it seems that the SEC will not get much done until it establishes a strong regulatory framework for digital assets across the board.
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