Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), is set to address the U.S. Financial Services Committee, emphasising the SEC's evolving approach to technological advancements, including the realm of cryptocurrencies and artificial intelligence.
Most crypto tokens are an investment contract
A significant focus will be on the cryptocurrency sector, which has faced scrutiny for its "regulate-by-enforcement" approach, often criticised for stifling innovation in the U.S. Gensler will delve into the realms of predictive data analytics and cryptocurrencies, underscoring the need for investor and issuer protections in the "crypto asset securities markets."
Gensler’s testimony before the hearing included his now customary criticism of the crypto industry:
“Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place.”
Referring to the Securities Act of 1933, Gensler highlights that a majority of crypto tokens are likely categorised as securities under the definition of an "investment contract", implying that crypto intermediaries, including exchanges and brokers, must comply with securities laws. Gensler is concerned regarding the industry's widespread failure to comply with these regulations, resulting in multiple enforcement actions.
In April 2023, the SEC released guidelines that highlighted how existing rules apply to cryptocurrency trading platforms, including decentralised finance (DeFi) systems. The release also suggested a new definition for exchanges.
Warning on risks of AI
Gensler recognises the significant impact that predictive data analytics and artificial intelligence can have on improving financial inclusion and enhancing user experiences.
However, he cautions on the potential dangers of these technologies, particularly when financial institutions prioritise their own interests over those of investors. In July 2023, the SEC introduced measures to address conflicts of interest that may arise from using predictive data analytics.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
