Gensler Again Flags Crypto Markets’ Non-Compliance with Regulation

Crypto markets, on the whole, do not meet the requirements and are based on a ‘misrepresentation’ of decentralisation. This was stated by Gary Gensler, the head of the SEC during an AMA-session at the Atlanta Fed.

According to the official, crypto firms’ business models are based on ‘non-compliance with regulatory requirements’.

“They are typically based on client funds, mixing them with the firms’ assets, which creates a conflict of interest”, he explained.

Gensler cited the NYSE as an example. The official noted that the SEC would never allow it to operate as crypto platforms do — acting as a market maker or hedge fund or borrowing its own token and not disclosing publicly what it does.

The head of the agency noted that three of the four banks that ceased operations in recent times were linked to cryptocurrencies. In this way, Gensler illustrated the growing interdependence of digital assets and TradFi, which could raise the likelihood of “fires on the financial markets”.

The agency head questioned the need to publish clear rules for industry participants in light of the conflict between the agency and Coinbase.

“Regulation already exists. If we are being frank, the crypto space largely operates with violations. Our agency has developed rules: what it means to be an exchange, a broker-dealer, a custody and asset adviser, and how to register a securities offering. There is nothing in the new technology that contradicts the policy approved by Congress”, he explained.

According to the official, financial intermediaries and node operators must comply with the requirements if they are in any way connected with securities.

“We are ready to help address the misalignments. All we are asking for is to register and provide complete, fair, and truthful disclosure. Sort out the conflicts and ensure that time-tested rules against fraud, manipulation and the like are in force”,

Gensler stressed.

In conclusion, the head of the SEC again reminded of the Howey test, which serves to determine whether an asset meets the status of a security.

Since the start of 2023 the SEC has pointed to violations in the operations of Bittrex, Coinbase, Kraken, Gemini and Genesis.

In April, Gensler faced criticism over his agency’s stance on digital assets during hearings before the US House of Representatives.

Subsequently, Congressman Warren Davidson announced a bill that would remove Gensler from the post of SEC chairman.

Coinbase CEO Brian Armstrong said that the head of the agency is trying not to regulate the industry, but to curb it.