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While U.S. Senators remain divided about whether to regulate crypto markets, the Securities and Exchange Commission (SEC) has teamed up with fellow financial regulators to spot regulatory gaps and find the best ways to fill them, the SEC chair told Congress.
On September 14, Gary Gensler made his first appearance as the chairman of the SEC before the U.S. Senate Banking Committee.
Gensler, a former Wall Street banker who later earned a reputation as a tough regulator, said that the SEC was working in tandem with other financial regulators to iron out problems relating to crypto-market regulation.
Their collaboration centers around two questions: how the regulators can best protect investors in the market under their current authorities; and what gaps there are that they might fill with Congress’ assistance.
The SEC is collaborating with its sibling agency, the Commodity Futures Trading Commission (CFTC), as the two agencies each have relevant and sometimes overlapping jurisdiction in the crypto markets, Gensler said in his testimony.
In a broader context, the regulator is also working with the Federal Reserve, the Department of the Treasury, the Office of the Comptroller of the Currency and other members of the President’s Working Group on Financial Markets.
The regulators are engaged in a number of projects which concern the following topics:
- The offer and sale of crypto-tokens.
- Crypto-trading and lending platforms.
- Stable value coins.
- Investment vehicles that provide exposure to crypto-assets or crypto-derivatives.
- Custody of crypto-assets.
Gensler reiterated his belief that, at the moment, the cryptocurrency market is more like the Wild West because it does not protect investors.
“I think that this technology has been — and can continue to be — a catalyst for change, but technologies don’t last long if they stay outside of the regulatory framework,” he concluded.
Senator Elizabeth Warren (D-MA), who is an active supporter of urgent crypto-regulation, warned lawmakers that “there is a whole list of problems with crypto”, such as unreliable technology, scams and its effect on the world's climate.
She dismissed arguments that digital assets could help reach the un/underbanked, arguing that “high, unpredictable fees can make crypto-trading really dangerous for people who aren’t rich."
“Advocates say crypto-markets are all about financial inclusion, but the people who are most economically vulnerable are the ones who are most likely to have to withdraw their money the fastest when the market drops.”
Gensler agreed that the crypto-market is “a highly speculative asset class” and it does not “sound like the path” to financial inclusion.
The Democratic senator concluded that “regulators need to step up to address crypto’s regulatory gaps and ensure that we are actually building the inclusive financial system that we need.” She expects the SEC to take a leading role in that.
At the same time, the Banking Committee ranking member Pat Toomey (R-PA) came down hard on the SEC for not proffering “helpful SEC public guidance” that explains how the agency makes a distinction between digital assets that are securities and those that are not.
He criticized the regulator for keeping such information private and "regulating cryptocurrencies by enforcement."
“I understand that SEC staff will privately provide feedback and analysis on whether a cryptocurrency is a security. Why keep this analysis private? Why not publicly announce what characteristics make a cryptocurrency a security or not a security? Why wait to make the SEC’s views known only when it swoops in with an enforcement action, in some cases years after the product was launched?”
The hearing came two months after House Representative Don Beyer (D-VA) introduced the Digital Asset Market Structure and Investor Protection Act, which provides a comprehensive framework to regulate digital assets. CFTC commissioner Dawn Stump criticized the bill for oversimplifying the SEC and the CFTC's jurisdiction concerning crypto securities and commodities, and reminded the public that the CFTC does not regulate commodities, such as cryptocurrencies.
