Gensler defends SEC crypto crackdown in House hearing

US Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before a Senate Banking, Housing and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, US, September 14, 2021.

Evelyn Hockstein | Reuters

WASHINGTON – Securities and Exchange Commission Chairman Gary Gensler faced a wave of criticism from House Republicans on Tuesday over his agency’s crackdown on cryptocurrency trading platforms.

In more than four hours of testimony before the House Financial Services Committee, Gensler stood by his view that crypto trading platforms and exchanges should comply with strict US securities laws.

“All of these companies should come into compliance with the law, and until they do, we will continue to pursue them like the cop on the beat, investigating and following the facts and the law,” Gensler told the panel.

Republicans took up many of the points the crypto industry regularly makes about regulation, arguing that the SEC’s disclosure rules were designed to regulate traditional markets and are ill-suited to decentralized digital currency exchanges.

Without legislation from Congress creating a new regulatory framework specific to crypto, the companies argue, digital platforms will move overseas to avoid running afoul of US regulators.

This could weaken America’s status as a hub of cryptocurrency innovation, they argue, and potentially cede that position to American adversaries.

“Your approach is driving innovation abroad and jeopardizing American competitiveness,” said committee chairman Rep. Patrick McHenry, RN.C., to Gensler at the start of the hearing.

“Regulation by enforcement is not sufficient or sustainable,” McHenry said. “You’re punishing digital asset firms for allegedly not following the law when they don’t know it will apply to them.”

However, Gensler rejected the notion that crypto trading platforms do not know how to interpret US securities laws.

“We have an entire field in crypto that understands the law, and if they’re providing exchange services, broker-dealer services, clearing services for crypto-security tokens, they should come into compliance,” Gensler said in response to a similar point later in the document. hearing.

Throughout his testimony, Gensler refused to discuss the details of the investigation into the collapse of FTX, and more recently, it notified Coinbase last month that the crypto exchange is under investigation.

The SEC has stepped up its enforcement of the crypto industry, cracking down on companies and projects it claims deal with unregistered securities. Reports first surfaced of an SEC probe into Coinbase in mid-2022.

Before the House committee on Tuesday, Gensler showed little sympathy for the challenges facing crypto exchanges operating in the United States.

“We have a clear set of regulations built up over 90 years,” he said. The exchanges are “just a bunch of middlemen in this market who think they have a choice. They don’t have a choice. They’re generally non-compliant and they have to come into compliance,” he added.

The prospect of legislation to regulate digital currencies has faded this year, drummed out by the debt ceiling standoff and the Republican majority’s focus on issues such as energy and countering the multifaceted threat from China.

Nonetheless, major crypto industry groups plan to spend millions of dollars this year lobbying Congress and the Biden administration.