SEC chair Gensler highlights crypto firms non-compliance in house committee testimony

The U.S. Securities and Exchange Commission (SEC) chairman Gary Gensler accused crypto firms of noncompliance with existing securities rules.

In an April 18 testimony before the House Financial Services Committee, the regulatory chief said, “nothing about the crypto markets is incompatible with the securities laws” because most cryptocurrencies are securities.

Gensler says the crypto market is rife with non-compliance

Gensler said most crypto intermediaries combine multiple services which traditional financial institutions provide separately. This increases the risk for investors and explains why crypto firms must register with the SEC regardless of whether they are decentralized.

“Crypto intermediaries—whether they call themselves centralized or decentralized—often provide an amalgam of services that typically are separated from each other in the rest of the securities markets: exchange functions, broker-dealer functions, custodial and clearing functions, and lending functions. The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors—risks and conflicts the Commission does not allow in any other marketplace.”

Gensler further noted that noncompliance was rife within the crypto sector, which places investors at risk and damages the public trust in the capital markets.

“It’s the law; it’s not a choice. Calling yourself a DeFi platform, for instance, is not an excuse to defy the securities laws,” he added.

Gensler highlights how SEC is protecting investors

Gensler emphasized several measures the financial regulatory body has taken to bring the crypto industry into compliance. He noted that the “Commission has spoken directly to crypto market participants in enforcement actions and a number of rule proposals.”

Gensler pointed out that the Commission wants to update the current investment adviser custody rule to “cover all crypto assets and enhance the protections that qualified custodians provide.”

Besides that, the SEC has reopened the comment period to amend the definition of an exchange. However, the proposed amendments have drawn several criticisms from crypto stakeholders.

SEC Commissioner Hester Pierce described the proposal as a way to “embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology.”

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