The crypto industry does not need any specific regulations for token-issuing projects, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said Thursday.
Framing the issue as an investor protection issue, Gensler said the rules and regulations that crypto issuers and service providers must follow have been clear for years.
“Nothing about crypto markets is inconsistent with securities laws,” Gensler said in his prepared remarks to the Practicing Law Institute. “Investor protection is equally relevant, regardless of the underlying technologies.”
His remarks are perhaps the clearest indication yet that the SEC intends to continue to apply existing rules and regulations to the crypto industry, contrary to the hopes of investors and entrepreneurs that the agency will create a sort of carve-out that will allow startups to issue tokens without having to register as a securities platform.
Gensler also reiterated his view that “most crypto tokens are investment contracts” in his speech, and pointed to previous SEC publications such as the DAO Report and the Munchee Order as guides that developers and entrepreneurs can and should follow.
“Some crypto industry players have called for greater “guidance” when it comes to crypto tokens. For the past five years, however, the commission has spoken with a pretty clear voice here,” Gensler said. “President [Jay] Clayton has often spoken about the applicability of securities laws in the crypto space.
Gensler echoed those remarks in an interview with CoinDesk ahead of Thursday’s keynote.
There are more than 10,000 cryptocurrencies listed on CoinMarketCap, with varying quantities and values, but all see similar approaches from the investing public, he said.
“[The public is] investing for a better future, based on the efforts of others,” Gensler said. “There are websites you go to, there are Medium posts you read, there are Crypto Twitter, there are Reddit forums and places you can look up information. this joint enterprise and this entrepreneurial effort, which is the hallmark of investment contracts, which are securities.
Later in his talk, Gensler took aim at crypto intermediaries, looking at both centralized and decentralized platforms.
“Crypto intermediaries – whether they call themselves centralized or decentralized (e.g. DeFi) – are often an amalgamation of services that are generally separated from each other in the rest of the securities markets: exchange functions, broker, custodial and clearing functions and lending functions,” he said in his speech.
These trading platforms must adhere to rules that protect their users, Gensler said, noting that they operate order books and facilitate transactions in cryptos, which can be securities. This last aspect “makes them brokers”.
Gensler pointed to attorneys hired to represent crypto entities as another example of how these projects can be in line with traditional securities platforms.
“I assume you had a client. I assume you did not take on the work on behalf of a dispersed, unidentified group of individuals in an “ecosystem,” Gensler said in his speech.
When asked if the SEC would take enforcement action against trading platforms that refuse to voluntarily register with the agency, Gensler pointed to the agency’s past enforcement actions, which have largely focused on token issuers.
“We’re a cop on the beat,” he said. “That’s what Congress put in place in the 1930s, but we work with market players and…quoting Joe Kennedy, the first SEC Chairman, ‘no honest business has to fear the DRY.'”
In his speech, Gensler only briefly mentioned loan companies, saying they fall under his agency’s purview if they offer securities.
He highlighted the possible dangers for investors in his conversation with CoinDesk, noting that several have filed for bankruptcy and frozen customer access to their funds.
Even companies that haven’t filed for bankruptcy have still frozen user access to their funds, he said.
“There are basic protections in our securities laws that protect against that,” he said. “If you invest in one of these, these service providers, these platforms, you don’t get these basic protections ensuring against fraud, manipulation, what is called front-running. “
Gensler cited the SEC’s settlement with crypto lender BlockFi as an example of how companies could register with the agency, though he declined to talk about other specific companies (noting that he could be talking about BlockFi as that is a settled issue).
The SEC is still sorting out the rest of the crypto lending space, he said, but in his view, it’s “unambiguous” that lending platforms must register with the agency. .
“It doesn’t matter what you hand over to a platform, whether you hand over gold, whether you hand over bitcoin [BTC] or you hand over one of over 1,000 alternate parts, frankly, if you hand over chinchillas. That the platform takes those funds of value and does something with them – they could run a hedge fund, they could lend it, they could run other investment programs – but this platform falls under the book of laws on securities because of how they took that money from you,” Gensler said.
Gensler’s main message – that crypto activities are already covered by existing regulations and do not need new laws or rules of their own – was repeated throughout his speech.
Stablecoins — cryptocurrencies whose values are pegged to those of a real-world asset, such as the U.S. dollar — are an example of this and are another area where investor protection is important, Gensler said in his speech.
Stablecoins can be securities, depending on how their peg is held, whether they pay interest, and how they’re sold, Gensler said.
“This is by no means an exhaustive list. The fact is that it is important to look at the facts and circumstances of a product, not its label, to determine if it is a token crypto security, insecure token, or other instrument,” Gensler said in his speech.
He told CoinDesk that he intends to work with the Federal Reserve and the US Treasury Department on this issue.
More broadly, he said he intends to work with companies and service providers, but reiterated that he sees the role of the SEC as being “a vigorous cop” overseeing the crypto sector.
“If we are successful, there will be more confidence in these markets and investors will be able to decide and entrepreneurs will be able to decide and projects will win, lose or fail based on their inherent risk,” he said. “…We will continue to use the powers that Congress has given us, but also the mandates to help better protect the public.”
UPDATE (September 8, 2022, 1:30 PM UTC): Add minor changes throughout.
Crypto doesn’t need more guidance, says SEC Chairman Gensler