The SEC chairman says cryptocurrency regulation is overdue
- Gary Gensler, the chairman of the Securities and Exchange Commission, talked to European lawmakers today about cryptocurrency regulation.
- Gensler warns digital asset industry won’t survive without more regulation
- Consumer protection is important when it comes to cryptocurrency oversight according to Gensler
The chairman of the Securities and Exchange Commission, Gary Gensler, addressed European lawmakers today about cryptocurrency regulation, digital engagement methods, and the controversial payment for order flow approach. Given the current financial environment’s global nature, Gensler emphasized the importance of international cooperation.
“Our global markets are inextricably linked, with money flowing between them in microseconds,” said Gensler via Zoom during a European Parliament committee hearing on economic and monetary affairs. “New financial technologies continue to change the face of finance for investors and businesses.”
Gensler mentioned a growing investor interest in the digital asset industry, but cautioned that without further regulatory control, it would not develop.
“While I’m technology-neutral, I am anything but public policy-neutral, and as new technologies come along, we need to be sure they’re achieving core public policy goals,” he said. “I’d like to note that financial innovations throughout history don’t thrive outside the public policy framework — they just don’t last that long unless we bring them inside.”
Consumer protection is one of the most important considerations when it comes to cryptocurrency oversight, according to Gensler. Especially if tokens are classified as securities, which is the case under current legislation, consumer protection is at the forefront.
“I think that many of these crypto tokens have entrepreneurs behind them and the investing public is looking and hoping for profit based upon the efforts of that entrepreneurial group or the sponsors and the like. Under our US laws, reviewed by our Supreme Court, that often makes those investment contracts under our laws a security, because that’s how Congress wrote our securities laws in the 1930s,” said Gensler.
Securities laws in the United States demand that securities be highly transparent in order to combat fraud. Gensler added, “Under US securities regulations, companies must provide investors with adequate information to avoid fraud.”
Finally, in response to a question from Ward about payment for order flow, SEC Chairman Jay Clayton stated that the commission is looking into the issue. Payment for order flow, also known as “payment for orders,” “order execution” or “market making,” has been controversial since its inception and has long been banned by US securities legislation.
“It’s really spread around this small handful of market makers that are buying a significant portion of the retail activity in the US,” he said “We have probably approximately half of our market now not going to the lit exchanges, but rather going to the dark poles and the wholesalers that are also dark. It is an inherent conflict.”
Gensler’s comments on CNBC, as well as his remarks reported in Business Insider earlier this week, are followed by a discussion of whether or not paying for order flow is feasible. Robinhood dropped significantly on the news, down almost 7 percent Monday before recovering slightly Wednesday.
“We’re learning from what you’re doing and trying to adopt,” Gensler said, referring to trading regulation in European markets. “Of course, we have different laws and different legal authorities, but we are hoping to adopt some of the good work you’ve done there and learn from it.”