The US Securities and Exchange Commission (SEC) chair Gary Gensler gave a speech at the 2023 Securities Enforcement Forum yesterday, 25 October. While he talked about the SEC’s $5billion spend in judgments and orders, he also touched upon the cryptocurrency sector.
Emphasising the need for comprehensive regulation and oversight in the crypto asset securities markets, Gensler made several key points regarding the sector.
Taking a dig at it, he said: “Don’t get me started on crypto. I won’t even name all the individuals we’ve charged in this highly noncompliant field.”
In reviewing the SEC’s actions in fiscal year 2023, Gensler noted the filing of over 780 actions, including over 500 standalone cases. The enforcement actions led to judgments and orders totalling $5bn, of which $930m was distributed to harmed investors.
He outlined the SEC’s enforcement philosophy, which revolves around five themes: understanding economic realities, ensuring accountability, focusing on high-impact cases, maintaining a fair process, and holding positions of trust. Moving on, Gensler touched upon the crypto asset securities markets.
According to him, these markets deserve the same protections under securities laws, suggesting that most crypto assets likely meet the Supreme Court’s test for an investment contract (as known from the Howey case), meaning that they should be considered securities. In saying so, Gensler reiterated his earlier stance on cryptocurrencies where he thinks that most of them fall under securities brackets and must be governed under the same law.
The cryptocurrency industry has often struggled with the lack of clear and straightforward regulations. However, Gensler is of the opinion that the laws are clear and therefore, the nature of the product — whether a digital asset, an app coin, or a token — wouldn’t matter. What rather matters is whether the asset is a security by law, said the chair.
“Without prejudging any one asset, the vast majority of crypto assets likely meet the investment contract test, making them subject to the securities laws.”
Gensler then went on to compare the current state of the crypto market to the “wild west” and the days of the early 20th century before securities laws were enacted. He pointed out that the market is full of fraud, scams, and abuse, and that many entities claim to operate outside the regulatory framework. He then linked the rampant non-compliance in the current crypto space to the chaotic financial environment of the 1920s.
Of late, the SEC has brought numerous enforcement actions against various actors in the crypto space. While some of these cases have been settled, others are still being litigated. The chair added that the regulatory body had filed lawsuits against 40 firms for violations of various rules and regulations since December 2021, leading to more than $1.5bn in penalties.
The SEC has also settled recordkeeping-related charges with 23 firms in the last fiscal year alone. According to him, these were in line with the SEC’s commitment to protecting investors and maintaining fair, orderly, and efficient markets.
Gensler wrapped it all up, reiterating the need for platforms and projects in the crypto space to work within the regulatory framework. They need to comply with securities laws to ensure investor protection and market integrity, said the SEC Chair.
His remarks underscored the SEC’s current approach to crypto assets, as well as his point of view, which has been the same for several years. According to Gensler, the rules are clear and the regulatory watchdog would not hesitate to hold accountable those who abuse their positions of trust.