SEC chair reveals a proposed joint regulatory role with the CFTC

• SEC chair Gary Gensler said commodities and securities in trading platforms are currently intertwined
• He also blasted the market-leading stablecoins’ lack of a direct right of redemption and raised conflict of interest concerns

Chairman of the US Securities and Exchange Commission (SEC) Gary Gensler spoke on a number of issues around crypto-assets and their regulation at the Penn Law Capital Markets Association Annual Conference yesterday.

As usual, Gensler insisted on the need to protect the investor from losses in the crypto space, such as the $14 billion stolen last year, and the best way his commission does it is by regulation. The SEC chair suggested a stricter regulatory framework to govern market makers in crypto.

Gensler is for the idea of registering crypto platforms so that they subscribe to the same regulatory requirements as exchanges.

“I’ve asked staff how to work with platforms to get them registered and regulated and best ensure the protection of customers’ assets, in particular, whether it would be appropriate to segregate out custody,” Gensler remarked.

He further explained that in a bid to provide better regulatory clarity, the SEC was exploring how to establish joint regulatory oversight with the Commodity Futures Trading Commission (CFTC) as the definition of securities and commodities is intertwined in the current trading platforms.

 “I’ve asked staff to work with the Commodity Futures Trading Commission (CFTC) on how we jointly might address such platforms that might trade both crypto-based security tokens and some commodity tokens,” he said.

Gensler also warned that the increased advertisement wave for crypto assets, reaching platforms as diverse as the Super Bowl, does not translate into credibility. Just as projects in other fields, he said, crypto innovation isn’t assured survival despite the hype.

A jab at stablecoins

The SEC chair also explored issues around stablecoins, which have come into the regulatory light in recent months, starting with the President’s Working Group on Financial Markets report released last November. The team suggested restricted issuance of the dollar-pegged tokens.

Gensler, in this instance, noted conflict of interest, particularly affecting the three largest stablecoins, to which he recommended increased supervision. As the tokens were created by trading/ lending platforms, Gensler floated integrity questions. He also appeared to pick holes in USDC and USDT for their lack of the right of redemption.

“The three largest stablecoins were created by trading or lending platforms themselves, and US retail investors have no direct right of redemption for the two largest stablecoins by market capitalisation. There are conflicts of interest and market integrity questions that would benefit from more oversight.“