The United States Securities and Exchange Commission and its chairman Gary Gensler were the target of many lawmakers and witnesses at hearings exploring the crypto market crash.
In a February 14 hearing in the Senate Banking Committee titled ‘Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets’, ranking member Tim Scott said Gensler should appear before Congress before September to address additional enforcement actions in the crypto space, calling out SEC chair to do the rounds on morning talk shows instead of testifying. According to the South Carolina senator, the SEC did not provide “little guidance,” which could lead to a lack of investor protection in bankrupt companies including FTX, Terra, BlockFi, Voyager, and Celsius.
“To think the SEC has failed to take meaningful preemptive action to ensure that this catastrophic failure does not happen again,” Scott said. “If they have the tools they need, do they just fall asleep at the wheel? […] We would be happy if chairman Gensler testified sooner – sooner – than later.
Witnesses who testified at the hearing suggested a different approach for lawmakers looking to regulate crypto. Policy director of the Duke Financial Economics Center Lee Reiners suggested that Congress work on legislation to “carve out cryptocurrency” from the authority of the Commodity Futures Trading Commission and label it as a security under the exclusive supervision of the SEC. Crypto Council Council for Innovation chief global regulatory officer and general counsel Linda Jeng testified that the lack of a consistent federal regulatory framework on crypto leads to a lack of investor protection and uncertainty among companies:
“The SEC has yet to begin a formal rulemaking process to update its decades-old securities laws to account for the unique attributes of digital assets defined as securities.”
Vanderbilt University law professor Yesha Yadav echoed some of Jeng’s concerns about developing a federal framework for crypto, but also proposed a self-regulatory regime where exchanges could monitor themselves as a complement to public regulation. Companies that fail to comply with these rules can be forced to pay financial penalties.
related: SEC to target crypto companies operating as ‘qualified custodians’ – Report
In the United States, there seems to be a regulatory tug-of-war between many government agencies that want to establish rules on crypto companies. Gensler has claimed most token projects qualify as securities under SEC guidelines and has repeatedly invited companies to “come in and talk to us”. The agency has already taken enforcement action against Kraken and Paxos in 2023.