SEC Chair Gary Gensler Seeks to Regulate Crypto Platforms ‘Like Exchanges’

Oversight of the US Securities and Exchange Commission, Washington, USA - 14 Sep 2021
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The Securities and Exchange Commission (SEC) is looking into crypto trading platforms being “registered and regulated much like exchanges,” Chair Gary Gensler said April 4.

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“In crypto, there is lots of innovation, but plenty of hype. As in other start-up fields, many projects likely could fail. That’s simply part of the entrepreneurial spirit in the U.S.,” Gensler said, speaking at the Penn Law Capital Markets Association Annual Conference, per a transcript of his remarks. “There’s no reason to treat the crypto market differently just because different technology is used. We should be technology-neutral.”

Gensler added that Congress gave the SEC a broad framework with which to regulate exchanges. “These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way,” he said.

Gensler said that the crypto trading and lending platforms — whether they call themselves centralized or decentralized (DeFi) — have scale, recently trading crypto worth more than $100 billion a day.

“The crypto market is highly concentrated, with the bulk of trading taking place on only a handful of platforms. Amongst crypto-only exchanges, the top five platforms make up 99 percent of all trading, and just two platforms make up 80 percent of trading. In crypto-to-fiat transactions, 80 percent of trading is on five trading platforms. Similarly, the top five DeFi platforms account for nearly 80 percent of trading on those platforms,” he said.

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Alex Zerden, founder of Capitol Peak Strategies, adjunct senior fellow at Center for a New American Security (CNAS) and a former Treasury Department official, told GOBankingRates that “the future of the legal and regulatory frameworks for digital assets remain a live question, as demonstrated by SEC Chair Gensler’s speech, industry’s responses, President Biden’s March 9, 2022 executive order on digital assets, and various legislative proposals.”

“We are in a dynamic period of accelerated public policy engagement in this new technological and financial space. However, the public discourse is the tip of the iceberg on much more sustained engagement about the future of this industry,” Zerden said.

Gensler also said he has asked SEC staff to consider how best to register and regulate platforms where the trading of securities and non-securities is intertwined.

“In particular, I’ve asked staff to work with the Commodity Futures Trading Commission (CFTC) on how we jointly might address such platforms that might trade both crypto-based security tokens and some commodity tokens, using our respective authorities,” Gensler added.

Ron Geffner, a former SEC enforcement lawyer who now oversees the financial services department at Sadis & Goldberg, told GOBankingRates that despite the rapid maturation of the crypto industry, “it still is reminiscent of the Wild West.”

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“Many consumers fail to appreciate the operational risks to which they are susceptible. Regulation is desperately needed,” Geffner said. “Regulation will not only increase consumer protection, but will enable the industry leaders in crypto to further separate themselves from other industry participants and will enable the industry to further grow by making the industry more appealing to institutional counterparties.”

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The third area of focus is around crypto custody, Gensler said, as unlike traditional exchanges, currently centralized crypto trading platforms generally take custody of their customers’ assets.

“Last year, more than $14 billion of value was stolen. I’ve asked staff how to work with platforms to get them registered and regulated and best ensure the protection of customers’ assets, in particular whether it would be appropriate to segregate out custody,” he said.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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