In a recent interview, Gary Gensler, chairman of the Securities and Exchange Commission (SEC), said that crypto companies would not survive unless they comply with free and fair disclosure rules.
Gensler said that “the runway is getting awfully short” for crypto firms that continue to evade full disclosure performed by major tech companies like Apple. On being asked about the regulator’s preferred method of regulation by enforcement, coupled with accounting rules and inspections, was not codified in clear policy directives, Gensler replied:
We’re using all available tools. We’re talking directly to market participants. We take the meetings and say, this is how you comply.
The SEC chair also hinted crypto companies to decouple “bundled products” from business models with clear conflicts of interest. He has long maintained that the United States Securities Act of 1933 is sufficient to regulate the crypto industry. He has not publicly engaged lawmakers on draft regulations of crypto bills angling for attention.
However, the SEC’s approach contrasts with the response of other regulatory agencies. Recently, Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), indicated a willingness to work with Congress on regulating crypto in 2023.
While Gensler claimed of sitting down with industry participants, SEC Commissioner Hester Peirce said in a speech that the agency did not consult crypto firm Kraken before it cracked down on the company’s crypto staking service. Commissioner Peirce dissented from the SEC’s assertion that Kraken should have registered its staking service with the agency.
She elucidated that there are no clear directives on how Kraken would have registered the product. She argued that whether each staking product required separate registration or whether one registration covered the whole program needed clarification.
Pierce also referred to the enforcement, for which Kraken was fined $30 million, “paternalistic and lazy,” for not previously issuing guidance. She added that enforcement by action would not clarify the disclosure requirements of other staking products constructed differently. The SEC’s crackdown on Kraken follows several attempts by U.S. financial institutions to make life difficult for the crypto industry, including actions from OCC against Paxos.
In December, the SEC’s Division of Corporation Finance issued a warning to publicly traded U.S. corporations concerning recent bankruptcies and financial difficulty among participants in the market for crypto assets, which have substantially disrupted those markets. They implied that listed corporations could be required to disclose, following federal securities rules, the direct or indirect effects of recent events in the crypto sector on their operations and balance sheets.