Securities and Exchange Commission Chairman Gary Gensler once again sounded the alarm on the need for greater regulation of the exploding digital asset and cryptocurrency markets today.
With a $2.6 trillion market capitalization and more than 100 tokens each purportedly with market capitalizations more than $1 billion, “this is an asset class that belongs inside public policy frameworks of looking after investors, guarding against illicit activity and protecting our financial stability,” Gensler said during opening comments at a meeting of the SEC’s Investor Advisory Committee.
He also worried that there are “significant gaps” in the regulatory system regarding investor protection, criticizing the “hype and spin” associated with crypto, which open up the markets to manipulation that leave investors vulnerable.
Currently, he said these markets are “rife with fraud, scams, and abuse.” He lambasted the digital asset sector as offering a market where investors are not receiving “rigorous, balanced, and complete information on tokens or trading and lending platforms.”
Gensler worried that “we cannot wait until a big spill in aisle three” to clean up the fraud or investor abuses.
The SEC chairman also said he believes many tokens are securities and should be regulated as such—a message that has become thematic during his first year heading the agency.
“I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight," he said. "A typical trading platform has more than 50 tokens on it. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote, with 50 or 100 tokens, that any given platform has zero securities.”
Gensler also said securities and trading platforms must register with the SEC. “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. Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction,” Gensler said.
He added that those who want to be financial innovators should take heed, because they “don’t long thrive outside of our public policy frameworks. If this field is going to continue, or reach any of its potential to be a catalyst for change, we’d better bring it into public policy frameworks.”
He invited “anybody who may be operating crypto platforms or issuing crypto tokens, please, come in and talk to the staff at the SEC. To the extent there are challenges about how to register or come into compliance, we’d like to hear what those are. The staff is standing by, ready to better understand if any bespoke adjustments may be appropriate. At the same time, investors should receive the same protections they receive in other asset classes.”