U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler warned that crypto exchanges like Coinbase should register with the regulator, an escalation of his previous statements regarding whether crypto trading platforms qualify as securities exchanges.
Gensler told the Senate Banking Committee on Tuesday that the SEC, like other federal regulatory agencies, does not have direct oversight over crypto exchanges, in response to a hypothetical scenario from Sen. Elizabeth Warren (D-Mass.) about selling cryptocurrencies during last week’s exchange outages.
“They haven’t yet registered with us, even though they have dozens of tokens that may be securities,” Gensler said.
That is the most explicit Gensler has been about having crypto trading platforms register as a securities trading platform. In prepared remarks for the committee published Monday, he wrote that any exchange that has a security listed must register with the SEC.
At the time, he did not name any specific companies. Warren used Coinbase as an example during a question about whether crypto actually bolsters financial inclusion.
“Let’s say that last Monday, I took out the last sliver of my savings, I went on the crypto exchange Coinbase, I bought $100 worth of ether, and then I woke up early on Tuesday morning, I saw that the market looked like it was beginning to tank and I thought I better sell right now, but when I tried to sell Coinbase, the exchange was down,” she said.
Gensler broadened his pitch for greater regulatory oversight of the crypto markets by asking for more resources to regulate different projects.
Sen. Catherine Cortez Masto (D-Nev.) asked if the SEC was sufficiently equipped to regulate crypto. Gensler said Congress can help coordinate oversight among banking regulators, as well as stablecoin supervision.
“I think funding wise we could use a lot more people. I just have to be frank with you, I mean there’s 6,000 projects. And while some of those are commodities, many of them are securities under the law,” he said.
A call for clarity
Sen. Pat Toomey (R-Pa.), one of the senators who pushed for an amendment to the Senate’s bipartisan infrastructure bill to narrow the definition of a “crypto broker” in a tax provision, pushed Gensler on a lack of explicit guidance on how a cryptocurrency might qualify as a security under federal law.
“A really important question is whether a cryptocurrency is a security for regulatory purposes under the Howey or some other tests. Based on your public statements, it’s pretty clear that you believe that some are securities, but others are not. So I’m frustrated by the lack of helpful SEC public guidance, explaining how you make this distinction. What makes some of them securities, while others are not securities,” Toomey asked in his opening remarks.
For his part, Gensler said in his remarks that “a small number” of cryptocurrencies are not securities, but he believes many are.
Toomey brought the issue up again during the back-and-forth segment of the hearing, asking about stablecoins as one example.
While Gensler pointed to different features of judicial precedent, including the Supreme Court’s “Reves” case, Toomey reiterated that his key point is a lack of explicit guidance from the SEC.
“I’m just saying as a layman who can read English, when I read those tests, stablecoins don’t seem to meet that test to me,” he said. “Maybe I’m wrong, but if I can misinterpret this, I think others could too and clarity, public clarity could be helpful.”
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