In his latest statement ahead of the 2023 Global Exchange and Fintech Conference, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler emphasized that there is no indication that investors and issuers in the cryptocurrency securities market should be exempt from the protections of existing securities laws.
Gensler reiterated that the vast majority of cryptocurrencies pass the investment contract test and thus fall within the purview of securities regulation. These tokens are often promoted by the team through websites and Twitter accounts, emphasizing their purpose and utility.
Accordingly, issuers of cryptocurrencies must register investment contracts for their offers and sales with the SEC or comply with exemption requirements.
According to Gensler, given that most cryptocurrencies are subject to securities laws, most cryptocurrency intermediaries must also comply with those regulations.
Failure to do so would not only harm investors, but also have potential implications for broader U.S. financial markets. In other areas of the securities market, the exchange, broker-dealer, and clearing functions are separate entities, helping to mitigate the conflicts that may arise from combining these services.
Cryptocurrency intermediaries may need to segregate their lines of business, establish a rulebook to prevent fraud and manipulation, properly segregate client funds, mitigate conflicts of interest, or modify their methods of clearing and custody.
As the cryptocurrency industry continues to grow, regulators are struggling to strike a balance between promoting innovation and protecting investors.
The SEC has been actively addressing the regulatory challenges posed by digital assets, including cryptocurrencies, and Chairman Gensler’s remarks reaffirmed the agency’s commitment to ensuring investor protection and market integrity.
While the SEC is actively engaging with market participants to clarify regulatory requirements, Gensler’s statement reminds cryptocurrency issuers and intermediaries that compliance with securities laws is critical to maintaining market trust and stability.
By reinforcing the notion that most cryptocurrencies are subject to the investment contract test, the SEC chairman emphasized the importance of regulatory compliance in an industry known for rapid growth and technological advancement.
As the cryptocurrency market matures, it is expected that the regulatory framework will continue to evolve to address emerging challenges and mitigate risks. At the same time, market participants are encouraged to work closely with regulators and adopt best practices that promote investor protection and long-term market sustainability.