U.S. REGULATOR TO CRYPTO FIRMS: GET USED TO IT

Despite crypto firms’ persistent complaints that the U.S. Securities and Exchange Commission (SEC) is unfairly targeting them for scrutiny, the agency will not reduce its oversight, SEC enforcement director Gurbir Grewal said on 9 September at a Washington conference. 

The SEC has a duty to protect naïve, poor, and minority investors, Grewal added. 

Crypto’s recent crash has disproportionately damaged those investors, who often were drawn to digital assets because the conventional financial and investment markets have ignored them, he said.  

“Critics are upset because we’re not giving crypto a pass from the application of well-established regulations and precedents,” he noted.  

“If we’re going to uphold our mandate, we can’t simply abandon the field when we confront potentially novel issues,” Grewal asserted. “Non-enforcement would be a betrayal of trust” and “that’s not an option for us.”  

At the same conference, Olivia Choe, the SEC’s chief litigator, touted her office’s record of suing crypto firms that skirt the rules and promised to continue to “litigate aggressively.”  

The day before, SEC chair Gary Gensler repeated his assertion that most crypto should be considered as securities, which brings them under the SEC’s regulatory control.  

However, the SEC’s “regulation by enforcement” is an “undeniable feature of the SEC’s effort to expand its own jurisdiction beyond the bounds of the law,” Jake Chervinksy, policy chief at Blockchain Associates, a crypto lobbying firm, told The Wall Street Journal.  

He accused the agency of “refusing to provide any guidance or propose any rules clarifying how upstanding crypto companies can meet its expectations.”  

Tom Emmer, a Republican member of the House of Representatives from Minnesota, has echoed the charge, saying Gensler has overstepped his authority in his attempts to impose rules on crypto firms.  

Gensler has urged Congress to pass legislation authorizing his agency to regulate crypto but Congress has yet to act.  

Rostin Behnam, chair of the U.S. Commodities Futures Trading Commission, also has asked Congress to give his agency a hand in overseeing crypto, as we reported  in “CFTC Seeks Authority to Regulate Crypto” (15 Feb 2022).  

TREND FORECAST: By permitting Bitcoin ETFs to trade in the U.S., the SEC already has staked its claim to overseeing cryptocurrencies.   

A broader regulatory structure will be imposed, though Congress will have its say at some point. 

The crypto industry itself is calling for regulatory clarity. The extent of government oversight will be closer to what Gensler and Behnam are suggesting, but probably less than either would like. 

With regulation, the Street will be more ready to accept stablecoins and other classes of digital coins.  

Regulations will take shape in parallel with central banks’ creation of CBDCs. Whether the U.S. will limit itself to regulating cryptos and stablecoins, or launch a “retail CBDC” (ie. a CBDC meant to be directly used and held by consumers) is still a very open question.