SEC’s Gensler: Crypto Needs Regulation to Survive

Given the borderless nature of cryptocurrencies and financial technology, regulators from the US and Europe must be a united front, SEC leader said Wednesday

share

key takeaways

  • SEC Chairman Gary Genlser spoke to European regulators Wednesday about how to approach cryptocurrency classification and regulation
  • Consumer protection is the greatest concern for the SEC, Gensler insisted

US Securities and Exchange Commission Chairman Gary Genlser appeared before European lawmakers Wednesday to discuss cryptocurrency regulation, digital engagement practices and the controversial payment for order flow practice. Given the borderless nature of today’s financial system, Gensler said, collaboration between nations is essential. 

“Our global markets are inextricably linked, with money flowing between them in microseconds,” said Gensler via Zoom during a European Parliament committee hearing on economic and monetary affairs. “New financial technologies continue to change the face of finance for investors and businesses.” 

Gensler acknowledged growing investor interest in the digital asset space, but warned that without greater regulatory oversight, the industry will not advance. 

“While I’m technology-neutral, I am anything but public policy-neutral, and as new technologies come along, we need to be sure they’re achieving core public policy goals,” he said. “I’d like to note that financial innovations throughout history don’t thrive outside the public policy framework — they just don’t last that long unless we bring them inside.” 

When thinking about oversight around the cryptocurrency space, Gensler said, consumer protection is at the forefront, especially if tokens are considered securities, which under the current framework, they are. 

“I think that many of these crypto tokens have entrepreneurs behind them and the investing public is looking and hoping for profit based upon the efforts of that entrepreneurial group or the sponsors and the like. Under our US laws, reviewed by our Supreme Court, that often makes those investment contracts under our laws a security, because that’s how Congress wrote our securities laws in the 1930s,” said Gensler. 

Under US securities laws, securities must maintain high investor disclosure in order to protect against fraud, Gensler said. 

The SEC head also discussed payment for order flow, the controversial practice where brokers are compensated for directing client trades to market makers. The practice is disadvantageous to traders and there is a problem of concentration in the market, Gensler said. 

“It’s really spread around this small handful of market makers that are buying a significant portion of the retail activity in the US,” he said “We have probably approximately half of our market now not going to the lit exchanges, but rather going to the dark poles and the wholesalers that are also dark. It is an inherent conflict.” 

The discussion follows Gensler’s comments from earlier this week, when he revealed that banning payment for order flow is a possibility. Shares of Robinhood, which earns a significant profit from payment for order flow and allows the application to offer commission-free trading, fell on the news. Robinhood stock fell almost 7% Monday before rising and trading slightly higher Wednesday. 

“We’re learning from what you’re doing and trying to adopt,” Gensler said, referring to trading regulation in European markets. “Of course, we have different laws and different legal authorities, but we are hoping to adopt some of the good work you’ve done there and learn from it.” 

Want more investor-focused content on digital assets? Join us September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. Buy it now.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

MON - WED, MARCH 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience:  Attend expert-led panel discussions and fireside chats  Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts   Grow your network […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Frax report cover.jpg

Research

Frax saw continued development in its frxETH liquid staking derivative and Fraxlend money market throughout 2023. Frax V3 introduces an RWA strategy to drive utility to the protocol's cornerstone product, the FRAX stablecoin.

article-image

Accredited and non-accredited investors worldwide will be able to purchase the Note starting Dec. 6 on US-regulated trading platform INX

article-image

Bitcoin’s next halving is less than five months away. History says they’re bullish but will this time be different?

article-image

Merger is set to allow the combined business to “flex between our different lines of business,” Hut 8 CEO says

article-image

Agency’s decision to start comment window earlier than expected could be bullish for spot bitcoin ETF approval in January, industry watchers say

article-image

Jump Crypto is the trading firm at the center of Terra-related market manipulation allegations

article-image

Funds tied to Coinbase co-founder Fred Ehrsam have made the most of the COIN rollercoaster