SEC Chair Gensler Outlines Plans for Crypto Trading, Exchanges, Investor Protection, Bitcoin ETFs

The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has outlined how the SEC plans to regulate the crypto industry. Focusing on investor protection, Gensler discussed concerns the SEC has about crypto trading, exchanges, lending, defi platforms, and exchange-traded funds (ETFs).

Gary Gensler Outlines SEC’s Crypto Priorities

SEC Chairman Gary Gensler outlined the agency’s plans regarding the regulation of cryptocurrencies at the Aspen Security Forum Tuesday. He described:

Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West. This asset class is rife with fraud, scams, and abuse in certain applications … If we don’t address these issues, I worry a lot of people will be hurt.

He elaborated: “There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information.”

Regulating Crypto Platforms: Gensler Says Many Are Offering Unregistered Securities

The SEC chairman proceeded to explain that many tokens are offered and sold as securities. “I’ve urged staff to continue to protect investors in the case of unregistered sales of securities,” he said.

Next, the chairman said he believes that crypto trading platforms, lending platforms, and decentralized finance (defi) platforms “can implicate the securities laws,” and in some cases the commodities laws and the banking laws as well.

He also stressed that cryptocurrency trading platforms do not have the same investor protection as traditional exchanges, like the New York Stock Exchange (NYSE). In addition, he said that many overseas platforms allow U.S. investors to trade cryptocurrencies using virtual private networks (VPNs), thus bypassing regulations.

Gensler emphasized:

Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption … If a lending platform is offering securities, it also falls into SEC jurisdiction.

Regulating Investment Vehicles With Crypto Exposure, Bitcoin ETFs

The chairman also addressed investment vehicles that provide exposure to crypto assets, including mutual funds that invest in bitcoin futures on the Chicago Mercantile Exchange (CME).

“I anticipate that there will be filings with regard to exchange-traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with the other federal securities laws, the ’40 Act provides significant investor protections,” Gensler opined, adding:

Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.

Gensler also addressed the custody of crypto assets, stating: “Custody protections are key to preventing theft of investor assets, and we will be looking to maximize regulatory protections in this area.”

SEC Needs More Resources to Protect Investors

Gensler stressed that the SEC has taken and will continue to take its “authorities as far as they go.”

He also claimed, “The test to determine whether a crypto asset is a security is clear.” Nonetheless, he admitted that “There are some gaps” in regulating the crypto space, elaborating:

We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.

The former MIT blockchain professor proceeded to emphasize that the SEC is ready to work closely with Congress, the administration, and other regulators worldwide to oversee the crypto space. He opined:

In my view, the legislative priority should center on crypto trading, lending, and defi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.