Key Takeaway: In DC, key regulators continue to highlight the downsides of crypto, suggested existing securities regulations are adequate to police the crypto securities markets, and emphasized the increasing risk facing consumers.
SEC Chair Gary Gensler and CFTC Chair Rostin Behnam appeared before House Appropriations Subcommittees regarding their agencies’ FY 2024 budget requests. Here is a brief summary of their crypto-related comments:
SEC Chair Gensler & Crypto Regulation: In his testimony, Chair Gensler said “we’ve seen the Wild West of the crypto markets, rife with noncompliance, where investors have put hard-earned assets at risk in a highly speculative asset class.”
- “Such growth and rapid change also means more possibility for wrongdoing. As the cop on the beat, we must be able to meet the match of bad actors. Thus, it makes sense for the SEC to grow along with the expansion and increased complexity in the capital markets.”
- Further, Chair Gensler noted that “rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space. Addressing this requires new tools, expertise, and resources.”
- When asked whether the SEC would issue new regulations around crypto, Chair Gensler noted: “The regulations already exist…They’re called the securities regulations.”
CFTC Chair Benham & Crypto Regulation: Chair Behnam’s testimony emphasized the need for new regulations so the CFTC can proactively oversee the crypto spot markets.
- Chair Benham noted that: “In the absence of direct regulatory and surveillance authority for digital commodities in an underlying cash market, our enforcement authority is by definition reactionary; we can only act after fraud or manipulation has occurred or been uncovered.”
- Further, he stated that “Technology not only makes it easier for individual customers to access markets—both regulated and unregulated—but it allows for the increased development of nano, mini, micro, and event contracts, as well as the structuring of crypto and index futures and options. As individual customers gain greater familiarity and comfort with regulated products, there is an increasing risk that they will find their way into more opaque venues.”
- Chair Behnam affirmed his belief that Ether is a commodity, noting Ether futures contracts have actively been trading on CFTC registered exchanges.
- He expressed his belief that the CFTC has jurisdiction over Ether derivatives and the underlying asset itself.
- He also agreed that “innovation flight” is a substantial risk to U.S. regulators, referring to Europe’s recent efforts to provide comprehensive regulation as a motivation for policymakers in the U.S. to start “moving the ball forward.”
What’s Next: The U.S. House and Senate are away from DC for spring recess until Monday, April 17th. On Tuesday, April 18th, SEC Chair Gensler will testify again, this time before the House Financial Services Committee.