Crypto Firms “Generally Not Compliant,” Says SEC’s Gary Gensler

A day after SEC’s settlement with Kraken shook the crypto markets, the Agency’s Chair Gary Gensler gave an interview on the case itself and the wider state of the crypto industry. According to Gensler, while the Commission’s doors are open for registration, digital asset companies are generally not compliant.

Gensler Says Crypto Companies Not Compliant With US Law

In an interview this Friday, SEC’s Gary Gensler discussed the recent enforcement action against the cryptocurrency exchange Kraken, as well as staking the digital asset industry in general. According to the Chair, cryptocurrency companies are operating in a largely non-compliant field. 

While Gensler refused to precisely elaborate on the implications of Thursday’s settlement for other firm’s offering staking—including Coinbase which quickly announced that the news has no bearing on its service—he expressed his view that staking, lending, annual yield, and several other services offered by digital asset companies are essentially the same. Furthermore, the SEC Chair stated that the firms offering these services must register with the Commission as otherwise there is a major risk they are not being truthful about what they do with their users’ assets.

Gensler also described the overall cryptocurrency sector as non-compliant and stated that comingling of customers’ funds—as was seen with the case of FTX and Alameda Research—is very widespread. Additionally, the SEC Chair stated that many companies may be misleading their client as to the actual ownership of the tokens. He cited the recent ruling in the Celsius bankruptcy case—which stated that all Earn program tokens belong to the company, and not the depositors—as evidence for the statement. 

The Chairman of the SEC finally said that the doors of his agency are open for cryptocurrency companies wishing to register and that his staff is ready to offer assistance in the process. He warned that failure to do so will lead to more enforcement actions. Interestingly, not everyone in the Commission agrees with this. Shortly after the settlement with Kraken was announced, SEC Commissioner Hester Perice published a statement calling the SEC a “lazy and paternalistic agency”.

According to Peirce, it is doubtful if digital asset companies could successfully register even if willing due to a lack of clear and workable guidelines. Additionally, she expressed her view that the SEC’s policy of notifying the public about what the law is through enforcement actions is highly detrimental.

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SEC’s Recent Settlement With Kraken

Much of Friday’s interview was in response to a Thursday announcement that the cryptocurrency exchange Kraken was targeted for its staking service. It was reported that Kraken agreed to settle with the SEC and shut down its staking service for US customers and pay $30 million in disgorgement. 

Kraken explained that all non-Ethereum tokens would be automatically unstaked while the same fate would await staked ETH after its Shanghai update is completed. The exchange also stated that, while two of its subsidiaries directly affected by the enforcement action would be barred from offering staking in the future, its international customers remain completely unaffected.

Crypto markets reacted strongly to the news with both Bitcoin and Ethereum dropping sharply and ending their 2023 rally—at least for the time being. Most digital assets-related stocks also declined. For example, Coinbase’s shares dropped around 14% on the day of the announcement—though Thursday’s decline is likely the result of Brian Armstrong’s  Twitter thread on a possible ban of crypto staking in the US—and continued falling on Friday.

Do you think that Gensler’s assessment that there is little to no difference between staking services, earn programs, and annual yield offerings is correct? Let us know in the comments below.