Crypto Platforms Need Regulation To Survive, Says SEC Boss

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The chairman of the United States Securities and Exchange Commission warns that cryptocurrency trading platforms are putting their own survival at risk unless they heed his call to work within the country’s regulatory framework.

Gary Gensler told the Financial Times that while remaining “technologically neutral”, crypto assets are no different from others when it comes to public policy imperatives such as investor protection, protection from investors. illicit activities and the maintenance of financial stability.

“At about $ 2 billion in value in the world, it is at the level and nature that if it is to have any relevance in five and 10 years, it will be in a public policy framework,” he said. declared. “History tells you it doesn’t last long outside. Finance is all about trust, at the end of the day.

Gensler expressed disappointment with the industry’s response to its suggestion that trading platforms register with the SEC on the grounds that a sufficient number of cryptocurrencies are considered securities.

“Talk to us, come in,” he said. “There are a lot of platforms that work today that would do better engagement and instead there are a few. . . begging for forgiveness rather than asking for permission.

Cryptocurrency trading platforms are big business in the United States – New York-listed Coinbase reported second-quarter profit of $ 1.6 billion. However, it’s unclear which US financial regulator is supposed to oversee them. Gensler called on Congress to make this authority more explicit.

Gensler’s crypto comments carry extra weight because he taught a course on the subject at the Massachusetts Institute of Technology. On Wednesday, he is due to testify on cryptography and other matters before the European Parliament’s Committee on Economic and Monetary Affairs.

Gensler said he had focused on cryptocurrency trading platforms because 95% or more of the activity of this “highly speculative asset” takes place in such places – with investor protections he said. described as “really rare”.

He said cryptocurrency and decentralized finance (DeFi) platforms pose a challenge to regulators because they exist without traditional brokers, to whom the laws can be easily enforced. Instead, they offer investors the opportunity to deal more directly with each other.

But he said regulators would be able to exercise their authority over even supposedly decentralized platforms. He argued that DeFi was “not really a new concept,” but a variation on the peer-to-peer lending business that sprouted at the turn of the century.

Just as there was a “business in the middle” of peer-to-peer lending, he said, DeFi platforms have “a fair amount of centralization,” including governance mechanisms, fee models and incentive systems.

“It is a misnomer to say that they are just software that they put on the web,” he said. “But they’re not as centralized as the New York Stock Exchange. It’s sort of an interesting thing that falls in between.

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Gensler also reiterated its concerns about the listing of Chinese companies in the United States. He said the vehicles listed were typically shell companies based in offshore locations such as the Cayman Islands that enter into service agreements with operating companies in China.

“Is there real money coming from the operating company in China to make payments or not?” ” he said. “There is a service agreement and, generally speaking, these payment entities do not pay dividends. “

The SEC is also finalizing rules that would suspend trading in such companies if their auditors do not allow U.S. regulators to examine their books. Under the Trump-era Foreign Company Liability Act, these companies have until 2024 to comply with these rules.

Congress plans to advance this schedule by one year. Gensler said the commission would be ready to implement those rules under the fast-track timeline, which means Chinese companies could come under closer scrutiny as early as 2023.

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