SEC Chair to Clarify Crypto Regulation Before Congress

Upcoming Gensler testimony before Congress could reshape regulations linked to the crypto industry.

Gary Gensler, Chair of the Securities and Exchange Commission (SEC), will brief the US House Financial Services Committee on how the regulator adapts its rules to keep pace with technological advancements.

According to the released Gensler’s opening remarks, the hearing will focus on cryptocurrencies and artificial intelligence, among other things. In particular, Gensler is set to discuss how the SEC’s rules are being modernized to match the “technology and business models of the 2020s.” 

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This comes amid criticism of the SEC’s so-called “regulate-by-enforcement” approach to the crypto sector, which many say stifles innovation.

In his address to Congress, the SEC Chair will emphasize that participants in the crypto market deserve the same protections as those in traditional securities markets.

Referring to the 1933 Securities Act, Gensler will highlight that an “investment contract” is one of more than 30 items considered a security. On top of that, Gary Gensler plans to reaffirm his stance that the majority of cryptocurrencies are securities.

As I’ve previously said, without prejudging any one token, the vast majority of crypto tokens likely meet the investment contract test.

Gensler will also point out a “wide-ranging non-compliance with the securities laws,” leading to numerous enforcement actions. In addition, he will discuss rulemaking efforts targeting crypto markets, including decentralized finance (DeFi) platforms. Earlier this year, the SEC issued further guidelines stating that existing rules also apply to these platforms.

Aside from crypto, Gensler will touch upon predictive data analytics and artificial intelligence, referring to them as “transformational technologies.” While these technologies have the potential to benefit the economy and increase financial inclusion, they also carry risks.

The SEC proposed new rules in July 2023 requiring firms to analyze and mitigate any conflicts of interest when using predictive data analytics to engage with investors.

Gensler’s testimony also leaves room for speculation on whether he will comment on ongoing legal cases involving US-based cryptocurrency exchanges like Coinbase and Binance.US, both of which face multiple charges for alleged violations of securities laws.

As Gary Gensler prepares to address Congress, the crypto industry watches closely to see how the SEC will adapt its regulatory framework to evolving technologies. The briefing could mark a significant step in defining the legal landscape for cryptocurrencies and other emerging technologies.

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