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SEC Chair Gensler says 'vast majority' of cryptocurrencies are securities

U.S. Securities and Exchange Commission Chair Gary Gensler is again calling on crypto projects and businesses to register with the agency.

In prepared remarks at an event organized by the Practising Law Institute, Gensler said Thursday morning the “vast majority” of cryptocurrencies are securities and crypto investors buying such assets should get the protections they receive from regulated broker-dealers.

“Investors deserve disclosure to help them sort between the investments that they think will flourish and those that they think will flounder,” he said.

“Investors deserve to be protected against fraud and manipulation.”

Gensler's comments largely what the SEC chair told Yahoo Finance back in July, which is that it makes sense to fit crypto into the disclosure regime for existing financial assets like stocks.

Drawing on the words of the SEC's founding Chairman, Joseph Kennedy, the current Chair said the statutes laid out in the nearly 90-year old securities laws should apply to crypto.

“Over the generations, Congress has refined and amended these key statutes, adding, amongst other things, oversight of clearing agencies and the over-the-counter market for securities,” he said.

Gensler also said Thursday the so-called Howey Test remains the standard by which, in his view, most crypto tokens quality as investment contracts.

U.S. Representative Raja Krishnamoorthi (D-IL) answers questions during a news conference about the recent Congressional delegation trip to the Indo-Pacific region, on Capitol Hill in Washington, U.S. August 10, 2022. REUTERS/Evelyn Hockstein
U.S. Rep Raja Krishnamoorthi (D-IL) who serves as Chair of the Subcommittee on Economic and Consumer Policy, sent letters to four federal agencies and five digital asset exchanges requesting information about the steps they are taking to combat cryptocurrency-related fraud and scams.

Recently, members of Congress have rekindled concerns around fraud in the crypto market.

On August 30, a House subcommittee on Economic and Consumer Policy sent letters to the SEC, three other Federal regulators, and five crypto exchanges requesting information on how each combats cryptocurrency-related fraud and scams.

Three days later, Coinbase Global (COIN), the only public company to receive such a letter, said in a blog post of the thousands of crypto tokens it reviews "around 90% never get considered for listing as they do not meet our strict requirements for protection against scams like 'pump-and-dumps' and 'rug pulls.'"

Along with broker and dealer services, Gensler said lending of crypto security tokens also falls under the same regime requirements.

Even for businesses dealing in non-security crypto tokens like bitcoin, which would fall under the Commodities and Futures Trading Commission’s (CFTC) jurisdiction, Gensler said “greater authorities with which to oversee and regulate” are needed.

“To the extent that crypto intermediaries may need to register with both the SEC and the CFTC, I would note we currently have dual registrants in the broker-dealer space and in the fund advisory space,” Gensler said.

Drawing a parallel to how the agency’s laws — near a century old — depended on Congress’ will to pass, refine and amend the statutes, Gensler repeated his desire to work with Congress on the matters.

“Let’s ensure that we don’t inadvertently undermine securities laws underlying $100 trillion capital markets. The securities laws have made our capital markets the envy of the world,” he added.

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