New SEC Chair Gensler Suggests Crypto, DeFi Need More Regs
On May 26th, Gary Gensler, MIT professor, and current SEC Chair, spoke to the U.S. House of Representatives about the future of financial regulations. In particular, Gensler discussed the need for tighter regulations for both cryptocurrency and SPACs (Special-Purpose Acquisition Companies).
Regarding crypto, Gensler noted that he is looking forward to “working with fellow regulators and with Congress to fill in the gaps of investor protection”, as he believes there is too much room for malpractice. His intention is to give crypto similar regulations to the New York Stock Exchange.
Gensler’s Views on Crypto
Gary Gensler’s remarks should come as no surprise, as the SEC has always spoken about bringing further regulations to the crypto market. During his discussion with Congress, he emphasized the lack of investor protections. Speaking directly about crypto exchanges, Gensler said:
“Tokens currently on the market that are securities may be offered, sold, and traded in non-compliance with the federal securities laws. Furthermore, none of the exchanges trading crypto tokens has registered yet as an exchange with the SEC. Altogether, this has led to substantially less investor protection than in our traditional securities markets, and to correspondingly greater opportunities for fraud and manipulation”.
He noted that he wants cryptocurrency to see similar regulations to the stock exchange, pointing to the likes of Nasdaq and the NYSE. In a previous hearing on May 6th, Gensler even suggested that it would be favorable if the SEC had its own department focused directly on crypto assets. This is because the SEC currently only spends 16% of its funding on new tech, and with the sheer breadth of the crypto markets, that is simply not enough to make a meaningful impact.
The SEC Chair also voiced concerns around DeFi, one of the biggest industries to come out of the blockchain field, stating that “crypto lending platforms and so-called decentralized finance (‘DeFi’) platforms raise a number of challenges for investors and the SEC staff trying to protect them”.
Although he did not detail what his plans were for DeFi, or if there currently are any. DeFi poses a very unique problem for the SEC, as its automated and decentralized nature could arguably mean that it largely sits outside of the SEC’s jurisdiction. Many argue that existing laws simply do not account for such infrastructure.
Gensler’s Past in the Crypto Sphere
Unlike a lot of SEC and government regulatory figures, Gensler has an in-depth knowledge of crypto and blockchain technology. In 2018, he taught a course at MIT named “Blockchain and Money”, which examined the significance of blockchain technology, the use-cases of distributed ledgers and smart contracts, and the impact that blockchain applications have on the financial sector.
This likely makes Gary Gensler the most knowledgeable Chair the SEC has ever had regarding crypto. Overall, this spells good news for investors and enthusiasts, because he understands the nuanced differences between crypto and traditional finance, and hopefully, this means he will not try to treat crypto as just another asset class.
Gensler is not the only SEC member to show a considerable understanding of blockchain technology. In January, SEC Commissioner Hester Peirce was vocal about DeFi, speaking about its significance as a robust, albeit tough to regulate, industry:
“It’s going to be challenging to us because most of the way we regulate is through intermediaries and when you really build something that’s decentralized, there’s no intermediary…. It’s great for resilience of a system. But it’s much harder for us when we’re trying to go in and regulate to figure out how to do that”.
Although it is clear that the SEC will still be pursuing regulations, it appears that the organization’s current configuration is more knowledgeable and more open to crypto than ever before. Crypto regulations will always be a contentious topic as they save people from financial ruin, but can also put a block on innovation.
What do you think Gary Gensler’s plans are for crypto? Let us know in the comments!