Regulatory Drums Pound Louder as SEC Chair Gensler Warns Crypto Exchanges on Derivatives, Stablecoins etc.

This past week, Securities and Exchange Commission Chairman Gary Gensler addressed the American Bar Association’s Derivatives and Futures Law Committee. Included in prepared remarks was a warning to crypto exchanges and their digital offerings.

While most US-based crypto marketplaces have learned that adhering to securities law is the more enlightened path to successful operations, there are other digital asset platforms that have ignored US securities laws and the possibility that regulators may pursue enforcement actions against these platforms regardless of location. Gensler, in the short few months of his tenure at the helm of the SEC, has consistently stated that crypto exchanges require more regulation.

Yesterday, Gensler targeted operators that trade crypto based on publicly listed securities as well as other derivatives, a clear shot across the bow.

To quote the Chairman:

“I’d briefly like to discuss the intersection of security-based swaps and financial technology [Fintech], including with respect to crypto assets. There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives.

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.

We’ve brought some cases involving retail offerings of security-based swaps; unfortunately, there may be more.

We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.”

It is hard not to ignore the expectation that we will soon see more enforcement actions emanating from the SEC when it comes to crypto trading.

Gensler is well known for his deep understanding of crypto as well as Fintech in general. Simultaneously, he has consistently voiced his concerns regarding innovative products that may be unregulated – like crypto – and the need for greater investor protection.

As the regulatory drums pound louder it is more a question of who and whenand not if the SEC guns for a possible crypto trading scofflaw.

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