Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), has a message for Coinbase and other cryptocurrency exchanges: the regulations are explicit and must be followed.
Gensler said in a video post on Twitter on Thursday, April 27, that crypto exchanges should treat cryptocurrencies like securities and quit treating the rules as if they are vague or unclear.
"The law is clear. If you're a securities exchange, clearinghouse, broker, or dealer, you must come into compliance, register with us, and deal with conflicts of interest and disclose important information. For 90 years, these laws have helped protect investors like you," he stated.
SEC's Involvement in Crypto Sector
Coinbase, a crypto exchange, recently filed a lawsuit against the SEC, demanding that it publicly reveal its response to a petition that had been pending for months. The petition asks whether or not it would enable the crypto business to be regulated under current SEC frameworks.
Since March, when it got a Wells notice signaling an enforcement action may be forthcoming, Coinbase has argued that the SEC's treatment of cryptocurrencies has been inconsistent and that the sector needed regulatory certainty.
According to CNBC, the SEC has been active against many crypto-related entities and individuals since the beginning of the year. These entities and individuals include the crypto exchanges Bittrex and Gemini, the crypto lending platform Genesis, and the crypto entrepreneur Justin Sun, as well as the notorious founder of Terraform Labs, Do Kwon.
Why Is SEC Compliance Crucial?
In a video published on Thursday and dubbed Office Hours, Gensler said that, despite the fog that has surrounded the argument, it is clear that crypto exchanges are engaging in the marketing and sale of securities.
The term "investment contract" was used by Gensler to describe the legal relationship that forms when one party invests money in a shared venture with the expectation that both parties will take part in the success of the venture.
Exchanges, brokers, dealers, and clearinghouses are apparently all examples of intermediaries for investment contracts that must register with the SEC and adhere to the regulations governing the sale and purchase of securities.
According to Gensler, customers are unable to access their assets when difficulties arise (such as bankruptcies) because the platforms are not in compliance with SEC standards and so lack fundamental investor safeguards.
The SEC's push to comply is in response to President Joe Biden's March executive order on digital assets. He directed federal agencies to examine the crypto ecosystem and offer recommendations for how the US can lead the global digital asset sector and address any risks to consumer protection or monetary stability posed by the developing industry.
In September 2022, Gensler emphasized that most US crypto projects are currently violating federal securities law and risking investors' well-being by failing to follow disclosure laws.
