March 25, 2023
"Crypto firms should do their work within the bounds of the law, or they shouldn't do it at all," says the head of America's Securities and Exchange Commission, which regulates US. investment markets. In an editorial published in The Hill, SEC chair Gary Gensler warns that instead cryptocurrency has many "trusted" intermediaries that are in fact non-compliant with U.S. securities law. Today, crypto is dominated by a handful of trading, lending, staking, and other financial intermediaries. The investing public is trusting these entities to be responsible with investors' assets. According to some data, the three largest crypto trading platforms purportedly account for almost three quarters of all trading volume. Crypto entrepreneurs might claim, in their own marketing materials, that they're transparent and regulated. But make no mistake: Very few, if any, are actually registered with the SEC and fully compliant with the federal securities laws. The lack of compliance puts investors' hard-earned assets at risk. Investors lack fundamental disclosures about the crypto assets themselves and the firms who execute their trades and custody their assets: What are firms doing with customer assets? How are they funding their promised returns? Are they putting their hands in investors' pockets? When you buy or sell a token, are you trading against the house? What are the rules to protect against manipulation and fraud? Without disclosure and other investor protections, we simply don't know. In essence, these firms are saying, "trust us." What's more, when firms go bankrupt (as many have of late), they turn to bankruptcy courts to sort out their mess. "[B]ased upon how crypto platforms generally operate, investment advisers cannot rely on them today as qualified custodians," the editorial concludes. Rather than comply with the relevant laws, "it has felt like some have sought a stamp of approval for noncompliant activity, rather than changing a fundamentally non-compliant business model rife with conflicts." Of course, another tool in our toolbox is rooting out noncompliance through investigations and enforcement actions. The SEC has successfully brought or settled more than 100 cases against crypto intermediaries and token issuers, including some who operated Ponzi or pyramid schemes, engaged in unlawful touting, or committed other forms of fraud.... Some have said that we should let the innovation flourish or risk it going overseas. But forsaking investor protection puts real people's life savings at risk. "It's a basic bargain in finance: If you want to raise money from the public, disclose certain facts and figures," Gensler told Politico this week. Their article notes "crypto giants are threatening to move their businesses across the Atlantic" from America to Europe, but with Gensler responding "We lose more if investors get harmed here." Crypto lobbyists have framed Gensler's push to force their industry to comply with 90-year-old securities laws as a war against financial innovation. Whatever changes brought by crypto markets will pale compared to what could come as brokerages and financial data aggregators move to incorporate artificial intelligence into their offerings, Gensler said. "The much more transformative technology right now of our times is predictive data analytics and everything underlying artificial intelligence," he said, adding that he looked forward to working with lawmakers on how those tools could be regulated.

Read more of this story at Slashdot.

“Crypto firms should do their work within the bounds of the law, or they shouldn’t do it at all,” says the head of America’s Securities and Exchange Commission, which regulates US. investment markets.

In an editorial published in The Hill, SEC chair Gary Gensler warns that instead cryptocurrency has many “trusted” intermediaries that are in fact non-compliant with U.S. securities law.

Today, crypto is dominated by a handful of trading, lending, staking, and other financial intermediaries. The investing public is trusting these entities to be responsible with investors’ assets. According to some data, the three largest crypto trading platforms purportedly account for almost three quarters of all trading volume. Crypto entrepreneurs might claim, in their own marketing materials, that they’re transparent and regulated. But make no mistake: Very few, if any, are actually registered with the SEC and fully compliant with the federal securities laws.

The lack of compliance puts investors’ hard-earned assets at risk. Investors lack fundamental disclosures about the crypto assets themselves and the firms who execute their trades and custody their assets: What are firms doing with customer assets? How are they funding their promised returns? Are they putting their hands in investors’ pockets? When you buy or sell a token, are you trading against the house? What are the rules to protect against manipulation and fraud? Without disclosure and other investor protections, we simply don’t know.

In essence, these firms are saying, “trust us.” What’s more, when firms go bankrupt (as many have of late), they turn to bankruptcy courts to sort out their mess.

“[B]ased upon how crypto platforms generally operate, investment advisers cannot rely on them today as qualified custodians,” the editorial concludes. Rather than comply with the relevant laws, “it has felt like some have sought a stamp of approval for noncompliant activity, rather than changing a fundamentally non-compliant business model rife with conflicts.”

Of course, another tool in our toolbox is rooting out noncompliance through investigations and enforcement actions. The SEC has successfully brought or settled more than 100 cases against crypto intermediaries and token issuers, including some who operated Ponzi or pyramid schemes, engaged in unlawful touting, or committed other forms of fraud….

Some have said that we should let the innovation flourish or risk it going overseas. But forsaking investor protection puts real people’s life savings at risk.

“It’s a basic bargain in finance: If you want to raise money from the public, disclose certain facts and figures,” Gensler told Politico this week. Their article notes “crypto giants are threatening to move their businesses across the Atlantic” from America to Europe, but with Gensler responding “We lose more if investors get harmed here.”

Crypto lobbyists have framed Gensler’s push to force their industry to comply with 90-year-old securities laws as a war against financial innovation. Whatever changes brought by crypto markets will pale compared to what could come as brokerages and financial data aggregators move to incorporate artificial intelligence into their offerings, Gensler said.

“The much more transformative technology right now of our times is predictive data analytics and everything underlying artificial intelligence,” he said, adding that he looked forward to working with lawmakers on how those tools could be regulated.