In remarks before the Aspen National Security Forum, SEC Chair Gary Gensler highlighted gaps in the regulation of cryptocurrencies that raise AML concerns and put investors at risk.
Mr. Gensler outlined the following concerns arising from the lack of crypto investor protections:
- many crypto tokens are improperly unregistered securities, lacking mandatory disclosures and market oversight, putting their prices at risk for manipulation and ultimately leaving investors vulnerable;
- crypto trading platforms are likely to offer trading, improperly, in tokens that are securities; and
- the use of cryptocurrencies can facilitate bad actors' efforts to sidestep a number of public policy goals related to the traditional banking and financial systems, such as AML, tax compliance and sanctions.
Mr. Gensler stated that he anticipates filings for exchange-traded funds with crypto assets exposure under the Investment Company Act. He also referred to an SEC staff assessment of such filings, indicating that he would look favorably on such findings if they are limited to Chicago Mercantile Exchange-traded Bitcoin futures. Mr. Gensler emphasized that the SEC will be looking to "maximize" protections in the crypto asset custody space and noted the SEC's open comment period on the matter.
Mr. Gensler also emphasized the need for Congress to (i) fill regulatory gaps involving crypto trading, lending and decentralized finance platforms and (ii) provide regulators with further authority to create rules and develop protections for crypto trading and lending.
Commentary
At the forum, Chair Gensler advanced his interest in comprehensive SEC regulation of cryptocurrencies and digital assets. This regulatory philosophy is largely consistent with both his tenure as Chair of the CFTC and Senator Elizabeth Warren's recent statements urging comprehensive regulation of digital assets by the SEC.
One can be sympathetic to the concerns raised by Mr. Gensler and Ms. Warren, but also believe that applying the full burdens of securities regulation to digital assets will stifle innovation. Put differently, there may be ways to regulate offerings of digital assets, but to do so in a way that allows for the development of online networks that are funded through the sale of digital assets that can be spent on the network. In that vein, rather than insisting that the full hammer of securities regulation be brought down on digital assets, Mr. Gensler might consider intermediate regulatory measures, such as the proposal for a limited safe harbor on the sale and trading of digital tokens advanced by Commissioner Hester M. Peirce.
Primary Sources
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
