SEC Chairman calls for comprehensive rules to be applied to digital assets
Crypto Legislation on the Way
The news comes at a turbulent time for the cryptocurrency market. However, Gensler made his stance on cryptocurrencies clear by stating that they “are like digital gold, and therefore commodities,” implying that the SEC should have greater jurisdiction over cryptocurrencies. currencies instead of the Commodities Futures Trading Commission, which currently regulates commodities.
At the same time, Senator Cynthia Lummis, together with Senator Kirsten Gillibrand, is preparing comprehensive legislation to regulate cryptocurrencies. Lummis believes that most cryptocurrencies are commodities, which would place them under CFTC jurisdiction for spot and futures trading.
Lummis added, however, that crypto products should be grouped into securities, which would subject them to the Howey test, a jurisprudential test that helps determine a title, and therefore fall under the SEC.
Additionally, in his talk, Gensler explained how a derivative contract called a swap is based on a crypto asset, making it a security-based swap and subject to SEC oversight. Gensler added that derivatives trading platforms — centralized or decentralized — that offer security-based swaps must register with the SEC.
“It is important to recognize that if the underlying asset is a security, the derivative must comply with securities regulations,” Gensler concluded.
Concerns about stablecoins
Also, in a recent interview with Bloomberg News, Gensler said he is concerned that crypto exchanges do not put up proper walls between different parts of their business such as custody, market making and providing a place to trade. He told the outlet that the “bundling” of services may not be in the interests of customers.
“Crypto has a lot of these challenges – platforms that trade before their customers,” Gensler said. “In fact, they often trade against their clients because they mark the market against their clients.”
The SEC chief also raised issues with stablecoins, digital assets that are usually tied to fiat currency. He pointed out that the three largest stablecoins – Tether, USD Coin and Binance USD – are all affiliated with exchanges.
“I don’t think it’s a coincidence,” he said. “Each of the big three was founded by trading platforms to make it easier to trade on those platforms and potentially avoid AML and KYC,” he added, referring to know-your-customer checks and the fight against money laundering.