Gary Gensler. Source: Bloomberg
US Securities and Exchange Commission (SEC) Chair Gary Gensler has sought a formal cooperation between financial agencies to regulate the crypto assets effectively.
According to a news report in the Financial Times, Gensler said there should be one rule book so that bad actors don’t make use of regulatory gaps and perpetrate frauds and manipulations. To this end, the SEC Chair said he was working on a Memorandum of Understanding (MoU) between SEC and CFTC towards bridging potential regulatory gaps. Gensler used to be the CFTC Chairman from 2009-2013.
He made these remarks against the backdrop of a bipartisan crypto regulation bill introduced by US senators Cynthia Lummis and Kirsten Gillibrand on June 7. It seeks to define most digital assets as commodities and favors expanding Commodity Futures Trading Commission’s (CFTC) role to regulate their trading.
As SEC has been lobbying aggressively to bring digital assets under its purview, thinking them to be securities rather than commodities, the crypto regulation bill in its present form leaves the SEC wanting a say in regulations.
“I’m talking about one rule book on the exchange that protects all trading regardless of the pair — [be it] a security token versus security token, security token versus commodity token, commodity token versus commodity token,” Gensler said, adding that this is necessary to protect investors.
Earlier, speaking at the Wall Street Journal’s CFO network on June 15, Gensler contended that cryptocurrencies are securities and the SEC is justified in seeking control over their regulation.
“These tokens are being offered to the public, and the public is hoping for a better future. That’s the characteristics of an investment contract,” he explained.
Speaking at an event earlier this month, Rostin Behnam, who took over as the CFTC Chair in January 2022, lauded the bill as “a very good job” that distinguishes digital tokens between securities and commodities. He said crypto markets are a natural fit for CFTC.
“Markets are markets, whether it’s derivatives or equities or fixed income.… There’s always a natural relationship between . . . derivatives generally and cash markets,” he had said, adding that the idea that CFTC is not fit for this job is misaligned.
Speaking at an event on June 14, Gary Gensler cautioned people that crypto lenders offering 4.5% to 7% returns to consumers who deposit their funds is too good to be true.
Although his remarks find resonance in the way Celsius, which offered 17% APY, was forced to freeze customers’ deposits in the wake of extreme market conditions, the SEC chair has been consistent in flagging the risks and need for regulation in the crypto space.
“How does somebody offer (such a large percentage of returns) in the market today and not give a lot of disclosure?” the SEC chairman remarked.
Between SEC and CFTC provisions, those of the former are considered more stringent.