Head of America’s SEC: Crypto firms should comply with US regulations

“Crypto firms should do their work within the bounds of the law or they shouldn’t do it at all,” says the head of America’s Securities and Exchange Commission, which regulates the United States. investment markets.

In an editorial published in The groundSEC Chairman Gary Gensler warns that cryptocurrency instead has many “trusted” intermediaries that do not actually comply with US securities law.

Today, crypto is dominated by a handful of trading, lending, betting and other financial intermediaries. The investing public trusts these entities to be responsible for investors’ assets. According to some data, the three largest crypto trading platforms allegedly account for almost three quarters of all trading volume. Crypto entrepreneurs can claim, in their own marketing materials, that they are transparent and regulated. But make no mistake: very few, if any, are actually registered with the SEC and are in full compliance with the federal securities laws.

The lack of compliance puts investors’ hard-earned assets at risk. Investors lack fundamental disclosures about the cryptoassets themselves and the firms that execute their trades and hold their assets: What do firms do with client funds? How do they finance their promised returns? Are they putting their hands in the investors’ pockets? When you buy or sell a token, are you trading against the house? What are the rules to protect against manipulation and fraud? Without disclosure and other investor protections, we simply don’t know.

Essentially, these companies are saying “trust us.” Also, when firms go bankrupt (as many have recently), they turn to the bankruptcy courts to sort out the mess.
“[B]based on how crypto platforms generally operate, investment advisors cannot rely on them today as qualified custodians,” the editorial concludes. Instead of complying with the relevant laws, “it has felt as if someone has sought a stamp of approval for non-compliant activity, rather than change a fundamentally incompatible business model full of conflicts.”

Of course, another tool in our toolbox is to root out non-compliance through investigations and enforcement actions. The SEC has successfully brought or settled more than 100 cases against crypto intermediaries and token issuers, including some who ran Ponzi or pyramid schemes, engaged in illegal espionage, or committed other forms of fraud.

Some have said that we should let innovation flourish or risk it going abroad. But abandoning investor protections puts real people’s life savings at risk.
“It’s a basic bargain in finance: If you want to raise money from the public, disclose certain facts and figures,” Gensler said Politico this week. Their article notes “crypto giants threaten to move their operations across the Atlantic” from America to Europe, but with Gensler responding “We lose more if investors get hurt here.”

Crypto lobbyists have framed Gensler’s push to force their industry to comply with 90-year-old securities laws as a war on financial innovation. Whatever changes crypto markets bring will pale in comparison to what could come as brokerages and financial data aggregators move to incorporate artificial intelligence into their offerings, Gensler said.

“The much more transformative technology right now in our time is predictive analytics and everything that underlies artificial intelligence,” he said, adding that he looked forward to working with lawmakers on how to regulate these tools.