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SEC opens door to greater scrutiny of crypto companies

SEC

The US Securities and Exchange Commission (SEC) could tailor disclosures to suit crypto companies, Chair Gary Gensler said Thursday, offering new insight into the commission’s future rulemaking.

Gensler, who was sworn in as SEC chair last year, said during a Senate Banking Committee hearing that he believes there’s a “strong case” for increased regulation of digital assets. But he stopped short of calling for the SEC to exercise sole regulatory authority over the nascent industry.

Instead, Gensler argued that other financial regulators like the Commodity Futures Trading Commission (CFTC) had had more experience overseeing digital assets like bitcoin, ether, and other cryptocurrencies.

According to the official, the public will benefit from increased control in the field of digital assets, especially when it comes to overseeing service providers such as lending platforms, exchanges, and broker-dealers.

“Many cryptocurrency platforms set the return rate at 4% to 20%,” Gensler said. If you’re a business owner, you’re probably wondering how this is possible. Consider how this might be achieved and what risks these ideas pose. I think there’s a strong argument for providing some investor protection in that area.”

Disclosure requirements

Gensler also suggested that the SEC could tailor its disclosure requirements to fit the unique characteristics of crypto companies. He added that they might want to have different disclosure regimes or requirements for digital asset businesses than other types of companies.

The SEC has already taken action against several crypto companies for allegedly misleading investors. For example, the commission filed charges against Ripple, alleging that its current and former chief executives have been conducting a $1.3 billion unregistered securities offering by selling XRP, which Ripple‘s founders created in 2012.

Gensler’s comments come as Congress considers several bills clarifying the regulatory landscape for cryptocurrencies. The Cryptocurrency Act of 2020’s most notable proposal would create three new categories for digital assets and task different financial regulators with overseeing each category.

This week, crypto lender Celsius filed for Chapter 11 bankruptcy protection in New York after the sinking price of an Ether derivative token helped push the battered crypto lender into a liquidity crisis.

But many members of that “community” may be in panic mode right now. On June 12, Celsius halted client withdrawals due to “excessive market conditions”. Users whose funds have been trapped on the platform are undoubtedly concerned about whether they will ever see their money again.

The Securities and Exchange Commission has rules in place to determine what constitutes an investment company. Gensler mentioned the agency’s inquiry of bitcoin lender BlockFi last month, which declared it a non-compliant, unregistered investment entity. The commission also recently subpoenaed MakerDAO, well-known decentralized finance (DeFi) protocol.

Investors deserve some protection

The SEC chief warned that the public lacks protection because some platforms and tokens don’t comply with regulations, despite the SEC’s ability to write rules and use its exemption authority to ensure compliance. 

The SEC is taking a closer look at digital assets, and I think that’s appropriate. I think investors want and deserve some protection in this space.

Gensler

The SEC has been largely hands-off when it comes to regulating cryptocurrencies. But that could change under Gensler, who has previously said that bitcoin is a “speculative store of value” and that ether “may have some real utility.”

It’s unclear whether Gensler’s remarks Thursday will lead to increased regulation of the crypto industry soon. But his comments suggest that the SEC is open to tailoring its rules to fit the unique characteristics of digital assets.

While the SEC has said it doesn’t want to shut down legitimate businesses, it is also clear that it wants to ensure compliance with securities laws.

Nellius Irene

Nellius Irene

Nellius Irene is a cryptocurrency investor and journalist who has been in the nascent space since 2018. She has researched and written on several crypto-related topics including non-fungible tokens (NFTs), decentralized finance (DeFi), fundraising, mining, etc. Her major focus is covering regulatory events that are capable of shaping the entire crypto ecosystem.

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