The Securities and Exchange Commission is “stretched thin” when it comes to being able to investigate cryptocurrency issues, Chairman Gary Gensler told lawmakers during congressional testimony Wednesday.
Executioner appeared before the House Appropriations Subcommittee on Financial Services to discuss the commission’s budget request for fiscal year 2024, though the conversation veered from crypto to the SEC’s proposed climate disclosure rules to the turmoil in the banking sector.
After Rep. Mark Pocan (D-Wisc.) asked Gensler if the commission has “adequate resources” with its current budget to investigate crypto, Gensler admitted it was tight. The crypto field is small compared to the general capital markets, but with a large number of compliance issues, according to Gensler.
“We’ve increased our resources there, but we can always use more,” he said.
Gensler’s concerns about the commission’s ability to oversee crypto investigations are in the context of the rapid growth of parties under the SEC’s jurisdiction in recent years. The number of RIA clients increased by 60% from 34 to 53 million between 2017 and 2022, while average daily transactions in the stock markets increased by more than 30 million to 77 million during the same time period, according to Gensler’s opening statement (The number of RIAs grew 22% during that time).
The agency’s total budget request was $2.436 billion, although the funding is deficit neutral, with expenses offset by transaction fees. The commission asked Congress to fund 170 new positions, with 50 earmarked for enforcement and 20 designated for the examination division.
Congress funded 400 new positions in FY2023, according to Gensler; and the commission added 20 additional positions to the Crypto Assets and Cyber Unit in 2022, doubling the staffing of that unit, according to the agency’s FY22 Enforcement Report.
The increase in enforcement comes as the SEC received more than 35,000 separate tips or complaints from whistleblowers in FY 2022, more than double the number in FY 2016, although Gensler noted that the division shrank by 5% during that time frame.
A number of other divisions, including the Division of Trade and Markets, the General Counsel and the Office of International Affairs, are requesting funding to hire staff specifically for crypto-related duties. For example, the trading and markets staff will “continue in-depth analysis of crypto data and other market monitoring functions,” according to the budget request.
The increase in expertise is dealing with an area of the industry that Gensler described in his testimony as “fraught with conflict.”
“I’ve been in finance for over 40 years, and by and large, most people try to comply with the laws as Congress writes them,” he said. “But this is a field that at its core has a lot of non-compliance, and it’s anti-money laundering laws, not just the securities laws.”
Democratic representatives were concerned about the ramifications of cuts to the commission, and Pocan argued that GOP colleagues wanted to return the agency to appropriations before 2022 or before the COVID era. Then rep. Norma Torres (D-Calif.) asked about the impact of a 30% cut, Gensler said he hoped it wasn’t on the table.
“I think the investment audience will be shortchanged,” he said. “The companies that want to do right by their investors and raise money, investors that invest would not have as much confidence in these capital markets.”
The SEC remained busy enforcing crypto-asset violations, including sue Beaxy.com this week for the simultaneous operation of an unregistered stock exchange, brokerage and clearing business. The commission also recently accused a Grenadian diplomat of selling unregistered crypto-asset securities and settled charges involving several celebrities (including Lindsay Lohan and Jake Paul) to promote crypto-assets on social media without disclosing that they were compensated for doing so.
