U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before a hearing of the Senate Committee on Banking, Housing and Urban Affairs on the SEC on Capitol Hill in Washington, U.S., September 14, 2021.
Evelyn Hockstein Reuters
WASHINGTON — Securities and Exchange Commission Chairman Gary Gensler came under heavy criticism from House Republicans Tuesday for his agency’s crackdown on cryptocurrency trading platforms.
In more than four hours of testimony before the House Financial Services Committee, Gensler reiterated his view that crypto trading platforms and exchanges should comply with strict U.S. securities laws.
“All of these companies should abide by the law, and until they do, we will continue to prosecute them as cops on the streets, investigating and obeying the facts and the law,” Gensler told the panel.
Republicans made many of the points that the crypto industry regularly makes about regulation, arguing that the SEC’s disclosure rules are designed to regulate traditional markets and are ill-suited to decentralized digital currency exchanges.
Without congressional legislation creating a new regulatory framework specifically for crypto, the companies argue, digital platforms will move overseas to avoid clashing with US regulators.
This could weaken America’s status as a hub for cryptocurrency innovation, they argue, potentially ceding that position to US opponents.
“Your approach drives innovation abroad and threatens American competitiveness,” committee chairman Rep. Patrick McHenry, RN.C., said at the start of the Gensler hearing.
“Regulation through enforcement is neither sufficient nor sustainable,” said McHenry. “They punish digital asset companies for allegedly not complying with the law when they don’t know it will apply to them.”
However, Gensler dismissed the notion that crypto trading platforms don’t know how to interpret US securities laws.
“We have an entire crypto space that understands the law, and if they offer exchange services, broker-dealer services, and crypto security token clearing services, they should comply with the regulations,” Gensler later said in response to a similar one point listening.
Throughout his testimony, Gensler declined to discuss the details of his investigation into FTX’s collapse and, more recently, his communication to Coinbase last month that the crypto exchange is under investigation.
The SEC has ramped up its enforcement of the crypto industry, getting involved with companies and projects it claims are selling unregistered securities. Reports of an SEC investigation into Coinbase first surfaced in mid-2022.
Gensler showed little sympathy for the challenges facing crypto exchanges operating in the United States before the House Committee on Tuesday
“We have a clear regulatory framework built over 90 years,” he said. Exchanges are “just a bunch of middlemen in this market who think they have a choice. They have no choice. They are generally non-compliant and have to comply with regulations,” he added.
The prospect of legislation regulating digital currencies has faded this year, compounded by the debt ceiling showdown and the focus of the Republican majority in the House of Representatives on issues such as energy and combating the multifaceted threat posed by China.
Nonetheless, major crypto industry groups plan to spend millions of dollars this year lobbying Congress and the Biden administration.