President Biden’s pick to lead the U.S. Securities and Exchange Commission (SEC) Gary Gensler was sworn into office this weekend following his confirmation by the Senate last week in a 53-45 vote.
“I feel incredibly privileged to join the SEC’s team of remarkable public servants,” Gensler said in a news release. “As Chair, every day I will be animated by our mission: protecting investors, facilitating capital formation, and promoting fair, orderly, and efficient markets. It is that mission that has helped make American capital markets the most robust in the world.”
Gensler’s agenda is packed and will have big implications for the crypto industry. With Coinbase just listed on the Nasdaq, the controversial SEC v. Ripple lawsuit putting the agency on the legal defensive and eight Bitcoin ETFs now pending the SEC’s approval, industry players are closely watching to see what Gensler and his leadership team will do.
At his nomination hearing before the Senate Banking Committee on March 2, Gensler said, “Bitcoin and other cryptocurrencies have brought new thinking to payments and financial inclusion. But they’ve also raised new issues of investor protection that we still need to attend to.”
“It’s important for the SEC to provide guidance and clarity,” Gensler added. “Sometimes that’s a clarity that will be a thumbs up, but even if it’s thumbs down, it’s important to provide that.”
Industry watchers have said that Gensler’s background and track record suggest that he will bring heightened enforcement and regulation to the SEC. Gensler was chairman of the Commodity Futures Trading Commission from 2009 to 2014. At the CFTC, he spearheaded the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which was created to prevent another financial crisis.
The cryptocurrency industry and even SEC Commissioner Hester Peirce have called for more regulatory clarity and better cross-agency coordination. Earlier this week, Peirce released — on GitHub — an updated version of the token safe harbor proposal that she had originally suggested in 2020. The safe harbor seeks to provide network developers with a three-year grace period to develop a functional or decentralized network.
“Now, as a new Chairman is coming into the SEC with a new agenda, is the perfect time for the Commission to consider afresh how our rules can be modified to accommodate this new technology in a responsible manner,” said Peirce, in a statement seeking public feedback on her updated proposal.
See related article: SEC commissioner Hester Peirce says enforcement is never good way to provide clarity
Gensler, who has also taught and researched blockchain and cryptocurrency policy as a professor at the Massachusetts Institute of Technology, is an expert on blockchain technology and has called it a “catalyst for change”.
“Central banks around the globe are really looking at how to provide more inclusive payment structures, more inclusive payment tokens,” Gensler said. “It’s also other payment system providers who are looking to say, how do we provide payment systems that operate 24 hours a day, seven days a week, and at lower cost, both cross-border and domestically.”
See related article: US must embrace digital dollar and cryptocurrency: Blockchain institute report
“One area of consumer protection — as right now in the custody of their funds, digital assets — the actual ownership relies on something called a private key and cryptography and ensuring that really that custody works,” Gensler said.
That protection extends beyond the custody of assets to protecting investors against fraud manipulation, Gensler said. “That’s the greater challenge,” he added. “some markets have been really rife with fraud and scams.”
Ripple lawsuit and Bitcoin ETFs
Gensler’s appointment could reshape the SEC’s stance towards cryptocurrencies. The SEC does not regard Bitcoin as a security subject to the SEC’s regulatory oversight. However, other crypto tokens have faced legal action.
The SEC is currently embroiled in a legal battle with San Francisco-based Ripple Labs, a blockchain payment platform. over its alleged unlawful sale of XRP tokens worth over US$1.38 billion. XRP ranked fourth by total market value with a market cap of about US$61.7 billion, at publishing time. The outcome of the SEC’s lawsuit against Ripple and determination of XRP’s status are being closely watched by industry leaders and investors alike for its potentially far-reaching implications for the cryptocurrency industry.
In March, LBRY, a blockchain company that offers a digital content sharing and publishing platform, was also charged by the SEC for conducting an unregistered offering of digital asset securities.
Several applications to launch Bitcoin exchange traded funds are also awaiting the SEC’s approval. The growing list includes Fidelity’s Wise Origin Bitcoin Trust, WisdomTree Bitcoin Trust, First Trust SkyBridge Bitcoin ETF Trust, VanEck Bitcoin Trust, Valkyrie Bitcoin Fund and NYDIG Bitcoin ETF.
See related article: SEC: no duty to warn about XRP; denies Ripple’s fair notice defense
How Gensler plans to approach digital assets
“At the SEC, it’s really to the extent that somebody is offering an investment contract or security that’s under the SEC’s remit and they have exchanges that operate there, then we have to make sure there’s investor protection. If it’s not that, it’s a commodity, as Bitcoin has been deemed be, then it’s either a question for Congress, how Congress would want that to be overseen or it’s possibly a question for the Commodity and Futures Trading Commission,” said Gensler in response to Senator Bill Hagerty’s question about how he would approach digital assets.
“I would work with the staff, I’d work with fellow commissioners and see how we can move forward, and to the extent investors can be protected and invest in these markets, that they’re allowed to do so. But to do so in again, the core function of investor protection and capital formation,” Gensler said.
Gensler previously served at the U.S. Department of the Treasury as Under Secretary of Domestic Finance from 1999 to 2001, and as Assistant Secretary of Financial Markets from 1997 to 1999. Prior to entering government service, Gensler worked for 18 years at Goldman Sachs, where he worked as a top banker in mergers and acquisitions.
Gensler’s confirmation by the Senate follows the Senate banking committee’s 14-10 vote in his favor on March 10. All 12 Democrats and Republican Senators Mike Rounds (South Dakota) and Cynthia Lummis (Wyoming) supported his nomination to be a member of the SEC and become its chairman.
South Dakota is home to Anchorage Trust, a cryptocurrency firm to secure a federal banking charter. Wyoming is known for being a crypto-friendly state and is the base of Avanti, the first regulated crypto bank in the U.S. For the final Senate confirmation vote on April 14, Rounds abstained and Lummis voted for Gensler.
“If we want to keep pace with China, then we must provide legal clarity to the digital asset industry,” Lummis tweeted. “While the SEC has a reputation as a black hole for innovators, Gary Gensler recognizes the potential of digital assets.”
Gensler’s nomination as a member of the SEC covered two terms — the first ending June 5, 2021, and the second ending June 6, 2026. The SEC has five Commissioners, and their five-year terms are staggered so that one Commissioner’s term ends on June 5 of each year.
Gensler will fill the SEC seat left vacant after former SEC chairman Jay Clayton — who led the SEC from May 2017 — stepped down on Dec. 23.
“We have seen that when the SEC does its job — when there are clear rules of the road and a cop on the beat to enforce them — our economy grows and our nation prospers,” Gensler said during his nomination hearing, reading from prepared remarks. “But when we take our eyes off the ball — when we fail to root out wrongdoing, or to adapt to new technologies, or to really understand novel financial instruments—things can go very wrong. And when that happens, people get hurt.”
“Markets — and technology — are always changing. Our rules have to change along with them,” Gensler said. “I believe financial technology can be a powerful force for good — but only if we continue to harness the core values of the SEC in service of investors, issuers, and the public.”
