The SEC's chairman claims the crypto industry is rife with non-compliance — and he's asking for another $200 million to chase bad actors.
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SEC chairman Gary Gensler has insisted that clear rules for the crypto industry already exist — despite several exchanges calling for much greater clarity.
At a House subcommittee in Washington DC, he was asked whether the agency planned to offer further guidance on how securities law applies to digital assets.
In reply, Gensler made it clear that he believes the regulations already exist — especially if a token has failed to achieve full decentralization. He explained:
"Crypto tokens — without prejudging any of them — you can look at most of them, I'm not going to say a number, and you can find a group of entrepreneurs with a Twitter site, with a website, with individuals ... and I bet most of you are not visited by decentralized, non-existent management. If you're going to get a meeting with somebody from crypto tokens ... there's a human, there's a group of entrepreneurs, or they're paying a lobbyist or a lawyer to meet with you."
Gensler went on to explain that the SEC is designed to protect the investing public — especially if an entrepreneur is raising money and Americans are giving them funds based on their efforts.
"The public is basically giving up their hard-earned dollars to invest in that token, and that token entrepreneur should give them full, fair and truthful disclosure. That's the core, so, frankly, of the 10,000 or 12,000 tokens, there are very few that don't have a group of entrepreneurs in the middle that the public's counting on. So those are securities sir, under the securities law."
The SEC chairman went on to describe crypto exchanges and lending platforms as "storefronts" that need to come into compliance with existing rules — and he was critical of many businesses in the space.
"They're taking investors' funds and trading against the investors and saying 'catch us if you can' — that's the nature of this field right now. Or 'we're offshore, try to find us' … I've been around finance for 40-plus years. By and large, most folks are trying to comply with the laws as Congress writes them. But this is a field that at its core has got a lot of non-compliance — and it's with the anti-money laundering laws and not just the securities law."
There have long been questions over whether much of the activity in the crypto market should fall under the purview of the SEC or the CFTC, which Gensler previously chaired. He said:
"Both of us oversee parts of the market. If you're touching U.S. investors, selling these tokens to U.S. investors, you come under the securities laws or the laws over at the CFTC."
What's Going On?
During his appearance before Congress, Gensler asked for $200 million in additional funding for the upcoming fiscal year — and said the SEC's work to catch bad actors in the crypto industry has left the agency "stretched thin."
The exchange's CEO, Brian Armstrong, was clearly frustrated — noting that this comes two years after the regulator reviewed its business in detail and approved its move to list on the stock market.
He claimed the SEC has been unfair and unreasonable, while his company is "right on the law and confident in the facts."
This was followed up by a punchy blog post written by chief legal officer Paul Grewal that said:
"Regulatory uncertainty in the crypto industry is getting worse. Instead of developing a regulatory framework for crypto, the SEC is continuing to regulate by enforcement only."
It appears some politicians in Congress have sympathy with this view.
Republican Representative Steve Womack, who chairs the financial services committee that grilled Gensler on Wednesday, said:
"After years of funding increases, we have an SEC that is heavy-handed with enforcement and examinations, and one that doesn't think twice about proposing new regulations to completely rethink our markets."