SEC’s Gensler highlights crypto non-compliance in Senate hearing

Gary Gensler, Chair of the SEC, testified before a Senate Committee regarding his view on crypto and the regulator’s general oversight.

On Sep. 12, the US Securities and Exchange Commission (SEC) Chair Gary Gensler appeared before a Senate Banking Committee chaired by Senator Sherrod Brown to testify on his commission’s regulatory oversight and Gensler’s stand on the crypto industry.

Sen. Brown opened with scorching remarks about the crypto industry, noting that there are a few millions in losses every day caused by fraudsters and a lack of transparency.

“The problems we saw at FTX are everywhere in crypto”, said Brown, referring to FTX’s $8 billion implosion in November 2022 due to risky bets and commingling of customer funds.

When asked by the Senate Banking Committee Chair whether compliance with existing financial laws could save American investors from billions lost to crypto fraud, Gensler replied saying: 

“If they were to live up to the investor protection built into the current laws, it would help investors. But right now, unfortunately, there’s significant non-compliance and its a field which is rife with fraud, abuse, and misconduct.”

Gary Gensler, SEC Chair

Senator Cynthia Lummis, a policymaker pushing for a more explicit crypto regulatory framework, also questioned Gensler about the SEC’s Staff Accounting Bulletin 121. 

Sen. Lummis argued that the bulletin in question, which proposes that public entities like banks report customer crypto assets on their balance sheet, could have adverse capital effects and disincentivize companies from handling digital assets.

The SEC Chair explained that the bulletin was explicitly directed at crypto because funds often commingle, and customer digital assets are not always segregated. Gensler added that it’s up to bank regulators to decide on the capital treatment in such cases.

Generally, Gensler stuck to his guns on the digital asset industry and maintained that existing laws are sufficient to oversee cryptocurrencies.

Also, the SEC Chair said reviews on the Grayscale decision and several spot Bitcoin ETF filings were underway.

Many in the crypto industry, like Coinbase, have long since berated the SEC for failing to provide clear guidance for digital asset service providers looking to register with the securities regulator.

Indeed, Coinbase petitioned the SEC, demanding regulatory clarity amid an onslaught of enforcement actions against crypto businesses. The SEC set a deadline of Oct. 11, 2023, to respond and asked the court to “take no action” for the time being.