What to expect from new SEC chairman Gary Gensler on cryptocurrency
In this article, the author explains that the new chairman of the Securities and Exchange Commission should be a friend of the cryptocurrency world.
In April 2021, the US Senate confirmed Gary Gensler, President Biden’s nominee, as the new chairman of the Securities and Exchange Commission (“SEC”). The former banker was an ardent regulator as chairman of the Commodity Futures Trading Commission (“CFTC”) under President Obama, and many expect his propensity for hard rules to continue as chairman of the SEC .1
Many believe Gensler will bring much-needed positive changes to the digital asset industry in the United States. Unlike others in government roles, Gensler has been dedicated to understanding the technologies and economics surrounding cryptocurrencies. Prior to his appointment, Gensler lectured on blockchain and cryptocurrency as a professor at MIT Sloan School of Management. His vast background in economics, politics and technology made him an optimal choice to lead the SEC, and the Senate confirmed it just a month after his appointment.2
GENSLER’S POSITION IN THE WORLD OF CRYPTO-CURRENCY
In May 2021, Gensler appeared at a hearing before the House Financial Services Committee, where he expressed his opinion on several regulatory priorities of the SEC.3 In response to several relevant questions, Gensler noted that we must rely on Congress for any substantial development in cryptocurrency regulation. Gensler explained that because the SEC only classifies several cryptocurrencies as securities (and therefore reports directly to the SEC), there is little that the SEC can do to make a real change.4 The ongoing case between the SEC and Ripple Labs over whether the XRP token is a currency or a security further illustrates the need for congressional intervention.5
Gensler also noted during the hearing that there is very little protection against fraud in the cryptocurrency space and that there is not much that can be done against those who use cryptocurrencies. to evade taxes and support terrorism. Gensler wants the SEC to be technologically neutral so it doesn’t inadvertently cripple innovation. He believes in technological growth under the watchful eye of the government. In the past, Gensler has suggested that America should integrate cryptocurrencies into the financial regulatory system; however, he still hasn’t come up with a plan to do so. Gensler remains committed to solving the growing problems in the cryptocurrency world, but remains firmly convinced that real change will have to come from Congress.6
A PATCHWORK APPROACH TO REGULATION
While Gary Gensler’s knowledge and familiarity with the crypto world brings a refreshing change of direction to the SEC, he alone cannot create a safe environment for crypto consumers. As chairman of the SEC, whose mandate is to protect U.S. investors (rather than regulate for greater [or global] public), Gensler faces many limitations in taming the crypto market. Even though Senator Elizabeth Warren (D-MA) called on Gensler to describe the ways the cryptocurrency markets undermine the SEC’s mission to ensure markets are fair and efficient, Gensler cannot quickly remedy a problem. lack of regulation.7 Therefore, others have focused on different forms of regulation to deal with the growing problem.
On the one hand, Representative Warren Davidson (R-OH) introduced in the House a bipartisan bill called the Token Taxonomy Act.8 The bill seeks to establish clarity in the crypto space and ensure that the development of blockchain technology remains in the United States. Many are hoping that the legislation will provide a framework and a direct path to a more orderly and secure future for the blockchain and crypto spaces.
Second, in March 2021, Representatives Patrick McHenry (R-NC) and Stephen Lynch (D-MA) introduced HR 1602, the Removal of Barriers to Innovation Act of 2021 (which has since been passed in representatives room).9 The bill would require the creation of a task force made up of industry experts and representatives from the SEC and CFTC to assess the current United States legal and regulatory framework for digital assets.
SEC Chairman Gensler is generally expected to be a friend of the cryptocurrency world. Not only is he an expert in the field, but he understands the underlying technology and nuances that permeate the obscure industry. However, Gensler is currently limited in how it can solve cryptocurrency-related issues.
While the future of cryptocurrency regulation is still unknown, Republicans and Democrats have prioritized resolving it in the near future. And many believe that if Congress extends the power of the SEC, the ensuing regulation will provide the cryptocurrency space with enhanced consumer protection, full stability, and much-needed legitimacy.
Senator Cynthia Lummis (R-WY) claims “smart legislation is on the way”, but only time will tell if our legislature can enact effective laws to deal with the rapidly evolving crypto world.ten
2. See https://www.forbes.com/sites/jonathanponciano/2021/04/14/gary-gensler-confirmed-secchairman/?sh=a93881b5862f; see also https://www.sidley.com/en/newslanding/newsannouncements/2021/02/what-to-expect-from-a-gensler-sec.
5 https://www.sec.gov/news/press-release/2020-338 and https://www.jdsupra.com/legalnews/ripple-effect-sec-lawsuit-against-7946641/ (discussing the potential for SEC lawsuit against Ripple Labs to provide future guidance to the crypto industry); see alsohttps://www.investmentexecutive.com/news/from-the-regulators/sec-decodes-ico-rules-tokens-are-securities/ (recounting the SEC finding that the Enigma MPC crypto token was in made a security.) The SEC settled the charges against Engima, and the company agreed to return funds to investors and register its tokens as securities. Identifier.
8. https://davidson.house.gov/2021/3/davidson-reintroduces-token-taxonomy-act#:~:text= Congressman% 20Ted% 20Budd% 20agreed., And% 20innovate% 20for% 20the% 20future.
Originally posted by The Banking Law Review.
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