The US Securities and Exchange Commission chair is warning that crypto trading platforms could endanger their survival if they don't work within the nation's regulatory framework.
According to Gary Gensler, the Financial Times reported that he was technology neutral but crypto assets are no different from any other when it comes to public policy imperatives such as investor protection, protecting against illicit activity, and maintaining financial stability.
He said that at $2 trillion in value, it is the right level and nature to ensure its relevance five to ten years from now. It doesn't last very long outside, as history has shown. Finance is all about trust.
Gensler was disappointed with the industry's response to his suggestion for trading platforms to register with the SEC, claiming that sufficient cryptocurrencies are securities.
He said, "Talk to us, come into," There are many platforms out there that could be more engaging. Instead of asking for permission, there's a little bit of...begging for forgiveness.
The US-listed Coinbase reported a $1.6 Billion profit for the second quarter. It is not clear who the US financial regulator is supposed oversee them. Gensler urged Congress to give this authority greater clarity.
Gensler's crypto comments have additional weight since he taught a course about the subject at Massachusetts Institute of Technology. He will testify before the European Parliaments economic-monetary affairs committee on Wednesday about crypto and other issues.
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Gensler stated that he was focusing on cryptocurrency trading platforms as 95 percent of the highly speculative activity takes place in these venues. He described investor protections as very sparse.
He stated that cryptocurrencies and Decentralized Finance (DeFi) platforms present a challenge to regulators as they do not have traditional brokers who can easily apply laws. They offer investors the opportunity to trade more directly with one another.
He said that regulators will be able exercise authority even over allegedly decentralized platforms. He said that DeFi wasn't a new concept, but was a variant of peer-to-peer lending companies that sprung up earlier in the century.
He said that DeFi platforms are similar to a company in the middle peer-to-peer lending.
He said that it is a mistake to call them software they release on the internet. They aren't as centralized as the New York Stock Exchange. It's interesting to see what is in the middle.
Gensler reiterated his concerns regarding Chinese companies being listed in the US. He stated that listed vehicles are typically shell companies located in offshore locations like the Cayman Islands, which have service agreements with Chinese operating companies.
He asked if there is any money coming from China from an operating company to pay out payments. The service agreement is not a dividend-paying entity.
SEC is currently finalizing rules that would prohibit trading in these companies if the auditors refuse to allow US regulators to inspect their books. These companies will have to conform to the Trump-era Holding Foreign Companies Accountable act by 2024.
Congress may consider moving that timeline forward by one year. Gensler stated that the commission would be ready for implementation under the accelerated schedule. This means that Chinese companies could be subject to greater scrutiny starting in 2023.
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