SEC Chairman Gensler Highlights Non-Compliance by Crypto Firms in Internal Committee Testimony

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U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has accused crypto firms of non-compliance with current securities rules.

In April 18 testimony before the House Financial Services Committee, the chief regulatory officer said nothing about crypto markets is inconsistent with securities laws because most cryptocurrencies are securities.

Gensler says the crypto market is plagued by non-compliance

Gensler said most crypto intermediaries combine multiple services that traditional financial institutions provide separately. This increases the risk for investors and explains why crypto companies must register with the SEC, whether they are decentralized or not.

Crypto intermediaries, whether they call themselves centralized or decentralized, often provide an amalgamation of services that are generally separated from each other in the rest of the securities markets: exchange functions, broker functions, custody and clearing and loan functions. The mixing of different functions within crypto intermediaries creates inherent conflicts of interest and risks for investors, risks and conflicts that the Commission does not allow in any other market.

Gensler further noted that non-compliance is widespread in the crypto industry, which puts investors at risk and undermines public confidence in capital markets.

It’s the law; it is not a choice. Calling yourself a DeFi platform, for example, is no excuse to defy securities laws, he added.

Gensler highlights how the SEC protects investors

Gensler highlighted several steps the financial regulator has taken to bring the crypto industry into compliance. He noted that the Commission had spoken directly with crypto market participants on enforcement actions and a number of rule proposals.

Gensler pointed out that the Commission wants to update the current investment adviser custody rule to cover all crypto assets and improve the protections provided by qualified custodians.

Additionally, the SEC reopened the comment period to change the definition of an exchange. However, the proposed changes have drawn several criticisms from crypto players.

SEC Commissioner Hester Pierce described the proposal as a way to embrace stagnation, force centralization, urge expatriation and hail the extinction of new technologies.

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