According to the head of SEC, crypto assets require more regulation before they can be moved forward.
Gary Gensler, SEC Chair, stated that fraud, scams and abuses in certain applications are all part of this asset class. He spoke at the Aspen Security Forum.
Gensler stated that he needed additional Congressional authority to ensure transactions, products and platforms do not fall between regulatory cracks.
Gensler covered many aspects of crypto business in his speech.
Digital tokensGensler stated that many digital tokens are considered investment contracts and are sold and offered as securities. They should be regulated accordingly. Gensler stated that there is a crypto market where tokens could be unregistered securities without market oversight or disclosure.
“This makes prices vulnerable to manipulation. Investors are vulnerable. According to him, he has asked staff to “continue to protect investors when unregistered securities sales are made.”
Platforms for crypto tradingGensler noted that the average trading platform contains more than 50 tokens. He said these platforms have’significant gaps’ in investor protection. It is unclear if any of these tokens could be considered securities and fall under the SEC’s purview. Gensler stated that ‘To the extent there are securities on these platforms, they must register with the Commission under our laws unless they meet an exception.
StablecoinsGensler pointed out that crypto-to-crypto trading was often done with stablecoins. These are crypto tokens linked or pegged to the value fiat currencies. Gensler fears that these stablecoins could be used to bypass anti-money laundering laws and tax compliance laws. This could also impact national security. Gensler stated that these stablecoins could also be securities or investment companies, and should therefore be subject to the SEC’s scrutiny.
Bitcoin ETFs. Many companies applied to the SEC for approval of a bitcoin ETF. None have been granted. Gensler pointed out that there are many vehicles that have invested in bitcoin. These include the closed-end Grayscale Bitcoin Trust and mutual funds that invests in bitcoin futures. Gensler stated that these investments are covered by the 1940 Investment Company Act. This Act provides significant investor protections.
“Given these important protections I look forward to reviewing such filings by the staff, especially if they are restricted to these CME-traded Bitcoin futures.
ProShares launched a mutual fund that tracks bitcoin futures last week, the Bitcoin Strategy ProFund.
Gensler didn’t comment on the raft bitcoin ETF applications, which do not own futures but seek to own bitcoin direct.
Gensler might be trying to differentiate between bitcoin ownership in the futures market which is highly regulated and bitcoin ETF, which would involve the fund purchasing bitcoins through unregulated entities.
Crypto assets under custodyGensler stated that the SEC wanted to comment on custody arrangements for crypto by broker-dealers, and related to investment advisors. He stated that custody protections are crucial to prevent the theft of investor assets and that regulators will look to increase regulatory protections in this area.Gensler: Innovation will require regulation.
Gensler is regarded as a champion of financial innovation. Gensler stated that crypto “has been and could still be a catalyst of change in the areas of finance and money.”
He has however made it clear that crypto is in urgent need of additional regulation to make it possible to move forward. ‘For those who wish to encourage innovation in crypto, I’d note that financial innovations throughout the history haven’t long thrived outside of our public policies frameworks… If this field is to continue or reach any potential for being a catalyst of change, we should bring it into our public policy frames.