SEC Chair Gary Gensler asks crypto community to embrace regulation or risk being sued

Published Thu, Sep 8 20228:45 AM EDT

SEC Chair Gary Gensler has asked a large part of the crypto community to "Come in, talk to us, and register." Speaking this morning at the Practicing Law Institute (PLI), Gensler has again reiterated that the Securities and Exchange Commission has a primary role in regulating large parts of the crypto market, including tokens. "Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities," Gensler told the PLI, implying that they therefore came under the purview of the SEC. "Investors deserve disclosure to help them sort between the investments that they think will flourish and those that they think will flounder. Investors deserve to be protected against fraud and manipulation. The law requires these protections," he said. "I've asked the SEC staff to work directly with entrepreneurs to get their tokens registered and regulated, where appropriate, as securities," Gensler said, though he acknowledged that only "a handful" had done so to date. Gensler also said that if many crypto tokens were securities, than crypto intermediaries transacting securities (exchanges, broker-dealers, lending platforms, etc.) would also have to register with the SEC. Gensler also took aim at stablecoins, saying that some may also be considered securities and would also need to register with the SEC. 'Come in and talk to us' Gensler's message: "If you fall into any of these buckets, come in, talk to us, and register," he said. "I look forward to working with crypto projects and intermediaries looking to come into compliance with the laws," Gensler said in his statement. "I also look forward to working with Congress on various legislative initiatives while maintaining the robust authorities we currently have." Proposals for more SEC oversight of the crypto community are likely to be met with hostility from the community itself, which has preferred to be regulated, if at all, by the Commodities Futures Trading Commission (CFTC). If regulation doesn't work, we can sue you Buried at the end of Gensler's speech is the threat that he will come after organizations he believes are violating existing securities laws: "I've asked staff to consider using our regulatory toolkit to possibly fine-tune compliance for crypto security tokens and intermediaries." The SEC in February charged BlockFi Lending with failing to register the offer and sale of its retail crypto lending product. BlockFi agreed to pay a $50 million penalty and cease its unregistered offers and sales of the lending product. Street focused on SEC's ambitious regulatory agenda While Gensler chose to focus on crypto regulation, much of Wall Street is focused on Gensler's even wider regulatory agenda, which includes over 50 proposals, among the broadest regulatory agenda in decades. There are currently 27 rules in the proposed stage, and 26 in the final stage, which means they are waiting to be voted on and then can be implemented. Among the rules that are ready for a final vote: Buybacks — New disclosure rules concerning share buybacks that would increase companies' disclosure obligations. Insider trading plans — Would impose restrictions on the use of insider trading plans (known as Rule 10b5-1 plans) by both individuals and companies as well as increase corporate disclosure requirements related to the use of trading plans. Cybersecurity Risk Governance — Would require mandatory reporting of material cybersecurity incidents and ongoing disclosures regarding companies' governance, risk management and strategy with respect to cybersecurity risks. Climate Change Disclosure — Would require corporations to provide disclosures on how their business may affect climate change, including greenhouse gas emissions. Another proposal that has been much discussed, but not yet moved forward, is a plan for equity market structure modernization , which would include improvements to best execution, disclosure of order execution quality statistics, transaction fees and payment for order flow. Enforcement threat In addition to more regulation, there is also an increased chance of more enforcement cases. September 30th is the end of the fiscal year, so now is the time to bring them. Another issue that may argue for an aggressive agenda: the midterm elections. If the Democrats lose the House of Representatives, congressional oversight of Gensler and the SEC will likely be ramped up. That enhanced Congressional oversight is likely to come from corporate America, which is unhappy about the large number of new regulations, the cost and the speed at which Gensler is trying to push the agenda through the agency. "The SEC is engaged in one of the most ambitious agendas in its history, as it has simultaneously undertaken dozens of rulemakings that would affect nearly every investor and issuer," said Kenneth Bentsen, Jr., president and CEO of the Securities Industry and Financial Markets Association (SIFMA) in a statement to CNBC. "While the industry supports the intent of some of the proposals, we are concerned about the lack of sufficient coordination and prioritization which could yield negative outcomes on market operations and practices, to the detriment of investors and issuers," Bentsen said. "Changing the 'rules of the road' across an array of connected markets simultaneously when there is no clear mandate, evidence of market failure or sufficient cost benefit analysis adds risk and uncertainty." Karen Barr, CEO of the Investment Adviser Association, which represents Registered Investment Advisors, has also been critical of Gensler's agenda. "The SEC should also consider alternative requirements for smaller advisers that would better balance the potential benefits of additional regulation with the new burdens on these advisers," she said in a statement to CNBC. "For example, other independent federal agencies have differing compliance requirements for small businesses, involving partial exceptions, a choice of alternative methods for compliance, extended compliance timetables and tiered requirements."