The SEC Chair Calls for More Investor Protection in Crypto Markets

Gensler cites fraud, scams, and abuse to build his case for stricter regulatory scrutiny on crypto assets

More Investor Protection

Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC) again raised the alarm bells on crypto-assets at an Investor Advisory Committee meeting last week. The chief regulator calls for more investor protection in the crypto market. 

Gary Gensler said, “Third, unfortunately, this asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about crypto assets and crypto projects. In many cases, investors aren’t able to get rigorous, balanced, and complete information on tokens or trading and lending platforms.”

In his speech, Gensler identified Decentralized Finance (DeFi) as an area with significant gaps in investor protection. Americans are participating in buying, selling, and lending on decentralized platforms where manipulation can take place. He adds that this leaves investors vulnerable and if not addressed, many people will get hurt. 

He also spoke of trading platforms dealing in unregistered securities as being in contravention of securities law and the regulatory body having oversight is the SEC.

Targeting DeFi and Securities

Gensler has been chanting the same war cries without making much progress. Industry players are still left in the dark on compliance. The offer for mutual consultation appears to be illusory

On September 8, Coinbase’s Chief Legal Officer, Paul Grewel wrote in a blog post, “The SEC has repeatedly asked our industry to “talk to us, come in.” We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued. A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation.”

This revelation appears quite contrary to Gary Gensler’s speech. 

He said, “Thus, I’d like to ask anybody who may be operating crypto platforms or issuing crypto tokens, please, come in and talk to the staff at the SEC. To the extent there are challenges about how to register or come into compliance, we’d like to hear what those are.” 

Proper disclosures and oversights are already accepted as a compulsory requirement to operate within a regulated space. Industry players are prepared to comply, but there is a problem. What are the requirements?

Time to Step Up

SEC is rather unresponsive to queries. In a tweet by Representative Tom Emmer, the frustration is clear. If an elected representative cannot get a response from the SEC chief, it is unlikely that institutions will be treated any better.

The threats to reign in DeFi products, stablecoins, and platforms trading in unregistered securities have been stifling development in the crypto market. Retail and institutional investors have been unable to participate because of the lack of regulatory clarity. This comes at a cost to the investors. 

US regulators must avoid spinning the same rhetorics. Other jurisdictions are taking progressive steps to embrace the change. There will always be risks in a nascent market. This risk can be hedged through consultations with the industry players. It is insufficient to merely offer lip service.  

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