Crypto Regulations. SEC POV

SEC Chair Gary Gensler expresses readiness to work with crypto companies to develop industry-specific compliance rules and use SEC powers from the Congress to help them bypass irrelevant laws.

A few weeks ago, the US SEC expressed that it would use its authority to facilitate the compliance process for crypto companies striving to abide by securities laws. In his interview with Yahoo Finance, chair Gary Gensler said:

“We do have robust authorities from Congress to use our exemptive authorities that we can tailor for investor protection”.

No specific line of exemptions was mentioned or implied.

In his comments he stated:

“… we at the SEC, are working in each of those three fields — exchanges, lending, and the broker-dealers — and talking to industry participants about how to come into compliance, or modify some of that compliance.”

Gensler also highlighted that SEC is focused on serving the digital asset community. They are developing a new approach for asset-backed securities and equities. This will help the agency to mainstream compliance procedures with regards to the financial peculiarities of crypto projects.

The SEC chief repeated that ‘non-compliant’ crypto companies are offering unregistered securities, but the agency is ready to collaborate with lending and trading platforms and find a path forward. The SEC hasn’t provided a clear onboarding procedure yet, and regulations are still vague.

It could be that the recent bill proposal where Commodity Futures Trading Commission (CFTC) was given a leading role in the regulation of digital assets which triggered a reaction from the SEC. CFTC has indicated that most crypto assets are commodities, except probably a few, SEC says most of crypto assets are securities except, probably Bitcoin.

The issue looks specific to the United States. The EU has a single body, European Securities and Markets Authority that covers SEC and CFTC functions and they are working on introducing unified crypto regulations.

SEC has gained experience in addressing regulatory ambiguities since 2017 ICO seasons. There is an ongoing case with Ripple regarding their investment thesis. In June, the agency started investigating token issues by Binance. These examples are clearly within their competence. In July, however, it filed charges against a former Coinbase product manager, and his friends, for an illegal trading scheme. They were accused of trading ahead of crypto token-related announcements generating illicit profits worth of $1.1M. CFTC is managing similar risks for other commodity trades and initiated actions against crypto trades BitMEX and PaxForex. No clear line is drawn between the of the scopes of the two.

It seems that both SEC and CFTC are interested in the control over the crypto industry and both have good arguments for that. This, potentially could lead to classification of crypto under classes and under different agencies: security (SEC regulated), commodity (CFTC regulated) and stablecoins (Fed regulated). We continue to observe outcomes.