Original title: "Getting crypto firms to do their work within the bounds of the law》
Original title: "
Originally Posted by Gary Gensler, Chairman, Securities and Exchange Commission (SEC)
Compilation of the original text: Kyle
When I was still teaching a course on blockchains and currencies at MIT, I would ask my students every semester who they thought "Who was Satoshi Nakamoto?".
To this day, no one knows. Satoshi’s anonymity was part of the myth of No Trusted Third-Party Finance Creation — a new way of transferring value across the internet, with the goal of being free of government oversight or the involvement of central intermediaries like banks.
However, since ancient times, the financial world has been built on trust and the rule of law. Additionally, finance has tended to be centralized, centralized, and interconnected, from banks to stock exchanges.
The crypto market is no exception. It has many "trusted" intermediaries (albeit non-compliant). Today, cryptocurrencies are dominated by a handful of exchanges, lending, staking, and other financial intermediaries. The investing public trusts these entities to be responsible for investors' assets. According to some figures, the top three crypto trading platforms are said to account for nearly three-quarters of all trading volume.
Cryptocurrency entrepreneurs may claim in their own marketing materials that they are transparent and regulated. But make no mistake: few, if any, of them are actually registered with the U.S. Securities and Exchange Commission (SEC) and fully comply with federal securities laws.
A lack of compliance can put investors' hard-earned assets at risk. Investors lack basic disclosures about crypto assets themselves and the companies that execute trades and custody assets: what does the company do with client assets? How do they fund the promised returns? Are they putting their hands in investors' pockets? When you buy or sell tokens, are you dealing with this exchange? What are the rules to prevent manipulation and fraud? Without disclosures and other investor protections, we simply wouldn't know.
Essentially, these companies are saying "trust us." What's more, when these companies go bankrupt (as many have done recently), they turn to bankruptcy court to sort out their mess. Considering Satoshi Nakamoto's original vision - "code is law" - this is somewhat ironic.
As Chairman of the US SEC, I have one goal when it comes to the crypto market: to ensure that investors and the market get all the protections they get in any other securities market. How do i do this?
First, intermediaries and tokens should properly comply on their own. Crypto intermediaries should be structured to comply with our laws that regulate stock exchanges, broker-dealers, and clearinghouses; they can create a rulebook to prevent fraud and manipulation. Issuers of cryptocurrency securities should file a registration statement and make the required disclosures.
These are the rules that others in the securities market have followed for decades.
I don't think the "lack of clarity in securities laws" argument held by many is convincing. Rather than admitting that their platforms do not have adequate investor protections, some cryptocurrency companies may say the law is unclear.
We have already made it clear that most entrepreneur-backed crypto tokens, among other characteristics, are likely to be securities. We have seen how lending and staking platforms are subject to securities laws. We have made it clear that platforms that list crypto securities must be registered with the SEC. In addition, securities laws clearly stipulate that these platforms must not combine functions under a single umbrella, which creates conflict and risk for investors.
A common trait of crypto companies that offer trading, lending, or staking as a service is that they typically require users to relinquish control of their crypto assets to the platform (not your keys, not your tokens). As a result, the SEC staff has clarified how companies should account for the crypto assets they hold for users, and the staff has provided guidance on the disclosure obligations resulting from the recent bankruptcy and financial distress of crypto asset market participants .
We are also very clear that, given how crypto platforms generally operate, investment advisors cannot rely on them today as qualified custodians. We also propose rules requiring all assets invested through investment advisors, including crypto assets that are not funds or securities, to be held in custody with a qualified custodian.
Quite frankly, though, there are no instances of cryptocurrency intermediaries lining up to register with the SEC and comply with laws enacted by Congress. Maybe it's just their business model that relies on non-compliance. At times, it feels like some are seeking approval for non-compliant activity rather than a change to a fundamentally non-compliant, conflict-ridden business model.
Of course, another tool in our toolbox is rooting out violations through investigations and enforcement actions.
The SEC has successfully brought or settled more than 100 cases against cryptocurrency intermediaries and token issuers, including some operating Ponzi or pyramid schemes, engaging in touts or other forms of fraud. We recently brought fraud charges against the CEO and other executives of FTX, as well as Terraform and its founders.
Enforcement action takes time and resources. This is especially true in the cryptocurrency space, as many companies are generally uncooperative, claim overseas jurisdiction even though they offer products to U.S. investors, and are well-funded to deal with protracted litigation, including the possible use of investors in their platforms. and funds raised on the platform. However, we will remain steadfast in our mission to root out wrongdoing in the marketplace.
Some have criticized the SEC for bringing lawsuits against crypto issuers and intermediaries — even if it’s sometimes just an investigation. Some say we should let innovation flourish or risk going overseas. But forgoing investor protections puts people's life savings at risk. Law enforcement is a tool, not an end. The goal is to keep market participants in compliance with laws and rules, and to protect our "clients": US investors.
