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‘Non-compliance is their business model’: Gensler slams crypto businesses in House committee hearing

Gary Gensler did not hold back on crypto during a grilling on The Hill today.

This morning, the House Financial Services Committee peppered the Securities and Exchange Commission Chair with questions about his agency’s actions during his tenure.

Gensler was asked to defend his aggressive stance on the crypto industry, which he did.

“I’ve been around finance for over 40 years in one way or the other, and I’ve never seen a field that’s so non-compliant with laws written by Congress and firmed over and over by the courts,” he said.

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The hearing came on the back of 24 intense hours in which the commission served yet another enforcement action — this time against a crypto exchange Bittrex.

Under his rule, the SEC has issued 130 enforcement actions, 55 of them on crypto businesses, many of which have been made in a recent crackdown following the failure of disgraced exchange FTX.

His aggressive stance has transformed Gensler into public enemy number one for US crypto market participants and their supporters on Capitol Hill.

Just before the hearing began, the committee’s Republicans published a letter to Gensler, slamming what they said was a lack of clarity on crypto regulation in the US.

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Politicians and industry representatives alike have criticised Gensler for his adamant stance that most crypto assets are securities and therefore under his aegis, while refusing to consider crypto-specific rulemaking.

The lawmakers followed this line of questioning during the hearing. Committee Chair Patrick McHenry in particular pressed Gensler to definitively state whether Ether or Bitcoin were securities and therefore regulated by the commission.

Gensler would not be drawn. But he has said in the past that he considers all crypto assets to be securities, with the exception of Bitcoin.

Gensler said during the hearing that the SEC has provided plenty of clarity on everything from crypto custody, to exchanges and the definition of crypto assets.

“It’s not a matter of a lack of clarity. I think this is a field that in the main is built up around non-compliance — that’s their business model … ,” Gensler said.

“And it undermines the $100 trillion capital markets.”

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Partisan divide

Crypto has not always been a starkly partisan issue on The Hill. But in the wake of scandals like the FTX collapse, the issue is increasingly partisan. That divide was on full display during this hearing.

While Committee Republicans laid into Gensler over his regulation of crypto, Democrats said it was a distraction from the real issues.

Gensler, who was Hillary Clinton’s economic advisor on her presidential campaign trail in 2016, has staunch allies among progressive Democrats.

Ranking member Maxine Waters said the US financial system is still recovering from a banking crisis, while enduring an affordable housing crisis and a “Republican-imposed default”.

“But unfortunately, today’s hearing is not focused on addressing any of those looming crises. Instead we are here this morning because last Congress, Republicans threatened to do a big number on the SEC and Chair Gensler, and today is the start of them making good on that promise,” Waters said.

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‘Republicans threatened to do a big number on the SEC and Chair Gensler, and today is the start of them making good on that promise.’

—  Maxine Waters

Kinetic leadership

Gensler’s last appearance in this committee was in October 2021. Since then, under his kinetic leadership, his agency has pursued an ambitious regulatory agenda, publishing 53 rule makings that have riled Wall Street.

In crypto markets, however, the SEC doesn’t have specific rule frameworks to fall back on in the same way. And Gensler believes existing securities laws apply to the vast majority of crypto assets, so they’re unlikely to have any soon.

But the commission hasn’t been idle in crypto markets. It just has to use different tools — enforcement actions. The commission has sharpened these tools in the wake of criticism that it didn’t step in to stop FTX or Terra before those businesses collapsed, harming investors.

In their letter, Republicans slammed Gensler’s line that all crypto businesses must do to avoid sanctions is to “come in and register” as a securities exchange under existing frameworks. These frameworks are unsuitable for crypto, the letter said.

Crypto businesses that have been through the process of registering say it is complex and costly. The SEC has only registered a handful of crypto businesses thus far.

“You say the crypto market is rife with non-compliance. However, existing SEC rules make no sense for blockchain-based companies and following them actually kill these businesses,” Republican representative Tom Emmer said during the hearing.

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