Recently, the Investors Advisory Committee (IAC) of the United States Securities and Exchange Commission (SEC) submitted its view on the regulation of crypto assets in the country. IAC was established under Section 911 of the Dodd-Frank Act to advise the securities regulator on regulatory priorities.
In their letter addressed to Gary Gensler, the chairman of the SEC, Christopher Mirabile, chairperson of the IAC, and Leslie Van Buskirk, vice chair of the organization, explained that they are submitting the view articulated “as a consensus of the IAC members.” The letter stated:
We believe that virtually all, if not all, crypto tokens are securities and that they, as well as the platforms and custodians dealing with them, are subject to regulation under the federal securities laws to protect investors.
The IAC’s suggestion adds to the predominant belief of the SEC chair. Gensler has reiterated his beliefs in numerous instances highlighting that all crypto tokens, except Bitcoin, are securities. Additionally, he has urged crypto trading and lending platforms to come in and register with the SEC.
In its letter, the committee also pointed out that several renowned cryptocurrency companies have either filed for bankruptcy or are on the verge of doing so and several others have faced both civil and criminal charges. This has also led to investors drowning in losses. As stated in the letter:
Many investors recently have suffered significant losses as a result of their investments in crypto assets. It is estimated that these losses have been more than $2 trillion.”
In addition, the letter states that crypto assets “have also been subject to notable levels of fraud and abuse” and “the semi-anonymous and borderless nature of crypto transactions make them well-suited for various illegal activities such as money laundering and tax evasion.”
Following this, the agency calls on the SEC to intensify its stringent approach towards crypto assets and continue to assert authority over crypto assets that are securities, and make crypto asset-related enforcement a top priority. As stated in the letter:
The SEC should continue to be aggressive in bringing enforcement actions against companies that are violating the federal securities laws in the crypto space, including, issuers, custodians, and those acting as unregistered platforms that offer trading in crypto asset investments.
Concluding the letter, the IAC advised the securities regulator to seek appropriate and additional recommendations from Congress wherever needed to efficiently regulate the crypto industry. In addition, the committee urged the SEC to continue to provide guidance on crypto assets, noting that the regulator should increase investors’ awareness of crypto risks and conduct examinations of broker-dealers and investment advisors to ensure proper standards of care.
The IAC’s recommendation to the SEC adds to the regulator’s long-claimed belief that all the crypto assets except Bitcoin are securities that have been refuted by the Commodities Futures Trading Commission (CFTC) as well as the industry participants.
Moreover, the SEC’s antagonistic approach towards cryptocurrencies has been criticized for restricting innovation. Reportedly, the SEC carried out a record number of enforcement actions last year and still plans to upscale its enforcement game.
In the past months, the regulator has brought under its radar several crypto firms including Paxos, Coinbase, and Kraken. While Kraken ended up paying a fine, Paxos received Wells Notice from the regulator for violating federal securities laws. The regulator targeted the exchange for selling unregistered securities referring to BUSD, the third largest stablecoin.
The CEO of the firm publicly acknowledged the notice but categorically disagreed with the regulator claiming that BUSD is not a security as per the Howey Test. Lawmakers as well as industry experts have criticized the SEC’s regulation via enforcement approach and have requested Congress for immediate intervention in the process of regulation.