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  • T Masters and M Bacina

Guidance or grievance? Breaking down the crypto comments from Gensler's SEC testimony

SEC Chairman Gary Gensler's recent testimony before US congress provides clearer insight into the views of the controversial chairman. Gensler spoke as a witness before US Senators Sherrod Brown and Tim Scott and other members of the United States Senate Committee on Banking, Housing, and Urban Affairs overseeing the activities of the SEC.

Chair Gensler spoke at length on a number of different focus areas for the SEC, including the proposed use of Artificial Intelligence as potential data analytic and tracking tools for use across the economy.

Critical for the blockchain space were Chair Gensler's comments about crypto-asset regulation:

There is nothing about the crypto asset securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws [...] given that most crypto tokens are subject to the securities laws, it follows that most crypto intermediaries have to comply with securities laws as well.

Chair Gensler's speech speech Washington DC in September last year saw sweeping statements made that the Chair considers:

Without prejudging any one token, most crypto tokens are investment contracts under the Howey Test.

The inference Gensler makes in his most recent testimony is clear: the SEC continues to position itself as "the cop on the beat watching out" while furiously avoiding any engagement with the rulemaking which Coinbase has been seeking. Focusing on enforcement priorities without providing meaningful rule-making to enable a pathway to compliance remains the chief criticism of the SEC's approach, with Chair Gensler saying:

Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place.

Gensler stops short of delving into some of the specific ongoing litigation the SEC is involved with and he naturally did not connect the making of rules in response to the issues of the 1920 as a solution to rules not being fit for purpose. Proposals in place to update the US custody rules for investment advisors to cover all crypto-assets have been heavily criticised by major financial businesses as being unworkable. Chair Gensler's views on crypto-assets don't seem likely to change and the absence of clear rules and a path to compliance in the US appears likely to keep headwinds against innovation in crypto-assets in that country.

By Michael Bacina and Tim Masters

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