The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has revealed that the regulator will use all available tools to bring crypto platforms into compliance with its rules. In addition, the SEC chief said: “Proof of reserves is neither a full accounting of the assets and liability of a company, nor does it satisfy segregation of customer funds under the securities laws.”
SEC Chair Gensler on Crypto Regulation
SEC Chairman Gary Gensler stressed the importance of bringing crypto platforms into compliance after the securities regulator filed charges against former Alameda Research CEO Caroline Ellison and former FTX executive Gary Wang for their role to defraud equity investors. The SEC boss tweeted Wednesday:
Until crypto platforms comply with time-tested securities laws, risks to investors will persist. It remains a priority of the SEC to use all of our available tools to bring the industry into compliance.
In an interview with Bloomberg Thursday, Gensler indicated that the SEC is just getting started with its crackdown on crypto firms that are not in compliance with its rules.
“The runway is getting shorter” for crypto firms to come in and register with the SEC, Gensler explained, emphasizing: “The casinos in this Wild West are non-compliant intermediaries.”
The SEC chief also commented on proof-of-reserves (POR) reports used by a number of crypto exchanges, including Binance, to prove that they have enough funds to fulfill customer withdrawals. Noting that this practice falls short of the disclosures needed to protect investors, Gensler explained:
Proof of reserves is neither a full accounting of the assets and liability of a company, nor does it satisfy segregation of customer funds under the securities laws.
Gensler suggested that crypto companies should “give customers confidence that their crypto is really there” by “coming into compliance with time-tested custody, segregation of customer funds rules and accounting rules.” The SEC is focused on crypto firms’ financial record keeping.
The securities watchdog and its chairman have been heavily criticized by some for their enforcement-centric approach to regulating the crypto industry. They have also been scrutinized in the collapse of crypto exchange FTX since Gensler and SEC staff met with former FTX CEO Sam Bankman-Fried (SBF) several times.
Congressman Tom Emmer (R-MN) tweeted Thursday: “Gary Gensler and the SEC had more meetings with SBF and FTX/IEX than anyone else in crypto, allegedly to craft a special regulatory framework designed to benefit FTX alone.” The lawmaker further wrote:
Making backroom regulatory deals with bad actors is not a tool in the SEC’s toolbox.
Congressman Emmer said last month that the FTX fallout is not a crypto failure but the failure of the SEC and Chair Gensler. The lawmaker from Minnesota has called on Gensler to testify before Congress about the cost of his regulatory failures.
Last week, the SEC chief stressed the importance of regulating crypto issuers and intermediaries. He previously said that most crypto tokens are securities but the crypto field is significantly non-compliant. The securities regulator recently published its strategic plan for the next four years and crypto is among its top priorities. Gensler said in November that the SEC’s Enforcement Division remains focused on crypto.
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