US lawmakers and experts debate SEC’s role in crypto regulation
The United States Securities and Exchange Commission and its chairman Gary Gensler were the target of many lawmakers and witnesses during a hearing exploring the crash in the crypto market.
In a Feb. 14 Senate Banking Committee hearing titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets,” Ranking Member Tim Scott said Gensler should appear before Congress before September to address additional enforcement actions in the crypto space, calling out The SEC chairman for making the “morning talk show rounds” instead of testifying. According to the South Carolina senator, the SEC had not provided “the slightest bit of guidance,” potentially leading to a lack of investor protection at bankrupt firms including FTX, Terra, BlockFi, Voyager and Celsius.
“To believe that the SEC has failed to take any meaningful preventative measures to ensure that this type of catastrophic failure does not happen again,” Scott said. “If they have the tools they need, were they just asleep at the wheel? […] We would like to have Chairman Gensler testify sooner – much sooner – than later.”
Witnesses who testified at the hearing suggested different approaches for lawmakers looking to regulate crypto. Duke Financial Economics Center policy director Lee Reiners suggested that Congress pursue legislation to “carve out cryptocurrency” from the Commodity Futures Trading Commission’s authority and label it a security under the SEC’s exclusive purview. Crypto Council for Innovation global regulator and general counsel Linda Jeng testified that the lack of a consistent federal regulatory framework for crypto contributed to a lack of investor protection and uncertainty among firms:
“The SEC has not initiated any formal rulemaking process to update decades-old securities laws to account for the unique characteristics of digital assets determined to be securities.”
Vanderbilt University law professor Yesha Yadav echoed some of Jeng’s concerns about developing a federal framework for crypto, but also proposed a self-regulatory regime where exchanges could monitor themselves as a supplement to public regulation. Companies that did not follow the rules could be forced to pay fines.
Related: SEC to Target Crypto Firms Operating as ‘Qualified Custodians’ – Report
In the US, there is apparently a regulatory tug-of-war between many government agencies that want to establish rules for crypto companies. Gensler has argued that most token projects qualify as securities under SEC guidelines and has repeatedly urged firms to “come in and talk to us”. The agency has already taken enforcement action against Kraken and Paxos in 2023.
