SEC Chair Gary Gensler Seeks to Regulate Crypto Platforms ‘Like Exchanges’

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The Securities and Exchange Commission (SEC) is investigating whether crypto trading platforms are “registered and regulated just like exchanges,” said Chairman Gary Gensler on April 4.

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“In crypto there is a lot of innovation, but also a lot of hype. As in other start-up areas, many projects are likely to fail. That’s just part of the entrepreneurial spirit in the US,” Gensler said, speaking at the Penn Law Capital Markets Association annual conference, according to a transcript of his comments. “There is no reason to treat the crypto market differently just because it uses different technology. We have to be technology neutral.”

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Gensler added that Congress gave the SEC a broad framework to regulate exchanges. “These crypto platforms play roles similar to those of traditional regulated exchanges. So investors should be protected in the same way,” he said.

Gensler said the crypto trading and lending platforms — whether they call themselves centralized or decentralized (DeFi) — have scale, recently trading more than $100 billion a day in cryptocurrencies.

“The crypto market is highly concentrated with most of the trading taking place on just a handful of platforms. Of all crypto exchanges, the top five platforms make up 99 percent of all trading, and only two platforms make up 80 percent of trading. In crypto-to-fiat trades, 80 percent of trading takes place on five trading platforms. Likewise, the top five DeFi platforms account for nearly 80 percent of trading on those platforms,” ​​he said.

Alex Zerden, founder of Capitol Peak Strategiesdeputy senior fellow at Center for a New American Security (CNAS) and a former Treasury Department official, told GOBankingRates that “the future of the legal and regulatory frameworks for digital assets remains a topical question, as evidenced by the SEC’s speech —Chairman Gensler, comments, President Biden’s March 9, 2022 order on digital assets and several legislative proposals.”

“We are in a dynamic period of accelerated public policy engagement in this new technological and financial space. However, the public discourse is the tip of the iceberg about a much more sustainable commitment to the future of this industry,” said Zerden.

Gensler also said he has asked SEC staff to consider how best to register and regulate platforms where securities and non-securities trade are intertwined.

“In particular, I have asked staff to work with the Commodity Futures Trading Commission (CFTC) on how we can jointly address such platforms that can trade both crypto-based security tokens and some commodity tokens, with the help of our respective authorities,” Gensler added. †

Ron Geffner, a former SEC enforcement attorney who now oversees the financial services division of Sadis and Goldbergtold GOBankingRates that despite the crypto industry’s rapid maturation, “it’s still reminiscent of the Wild West.”

“Many consumers are oblivious to the operational risks to which they are exposed. Regulation is desperately needed,” Geffner said. “Regulation will not only increase consumer protections, but will allow crypto leaders to further separate themselves from other industry participants and allow the industry to grow further by making the industry more attractive to institutional counterparties.”

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The third area of ​​focus is around crypto custody, Gensler said, as unlike traditional exchanges, currently centralized crypto trading platforms generally hold their clients’ assets in custody.

“Last year, more than $14 billion in value was stolen. I asked employees how to work with platforms to get them registered and regulated and to ensure the best possible protection of clients’ assets, especially whether it would be appropriate to separate custody,” he said.

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About the author

Yael Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including: Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major New York City financial firms, including New York Life and MSCI. Yael is now a freelancer and most recently co-authored the book “Blockchain for Medical Research: Accelerating Trust in Healthcare”, with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in journalism from New York University and one in Russian studies from Université Toulouse-Jean Jaurès, France.

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