SEC Shifts Gears Responding to Cryptocurrency and AI Developments: Chair Gensler Speaks Out
Summary:
The U.S. House Financial Services Committee will discuss the updates the Securities and Exchange Commission (SEC) is making to its oversight and rules in response to technologies such as cryptocurrencies and artificial intelligence. SEC chair, Gary Gensler, will present these changes, emphasizing the importance of investor protection in cryptocurrency securities markets. The SEC reaffirms its stance that cryptocurrencies are subject to securities laws, hence, intermediaries must adhere to these laws. Gensler also touches on potential conflict-of-interest scenarios arising from technological innovations, requiring neutralization by involved firms.
The forthcoming meeting of the U.S. House Financial Services Committee will feature discussions about the new regulatory strategies of the Securities and Exchange Commission (SEC) in response to the digital wave encompassing cryptocurrencies and artificial intelligence. Gary Gensler, the chair of the SEC, is slated to discuss the regulator's adapted processes to accommodate modern-day technological evolutions. Gensler’s 'opening shot' has been released before the Sept. 27 meeting, highlighting broad SEC control over U.S. securities and exchanges.
One focus point in the SEC's altered approach is around cryptocurrency, which has faced backlash for its “regulate-first, innovate-second” methodology that is said to stifle creativity and consumer acceptance in the U.S. Gensler is expected to shed light on crucial tech sectors - predictive data analytics and cryptocurrencies. He will emphasize the necessity of protecting investors and issuers operating in the "cryptocurrency securities markets" under securities laws.
Drawing from the 1933 Security Act, Gensler suggests that Congress chose to incorporate over 30 items in the classification of a security, inclusive of “investment contract”. He stated, “As expressed earlier, without any prior judgment of an individual token, a large majority of digital tokens likely pass the investment contract criteria.”
In front of the House Financial Services Committee, Gensler is poised to make a statement that SEC considers most cryptocurrencies as covered by securities laws. Accordingly, this also signals that entities such as exchanges, brokers, and dealers should abide by these laws. Gensler implicated the broader industry in significant “non-adherence to securities laws”, prompting a slew of enforcement actions.
This has resulted in the SEC's endeavour to oversee the cryptocurrency "security markets" via lawmaking. As an example, a reissuing statement from April 2023 restated previous SEC rulings concerning cryptocurrency trading platforms, including those with Decentralized Finance (DeFi) protocols. Further guidelines were included to outline systems subjected to a newly proposed exchange definition.
Gensler articulated that the technological advancements brought about by predictive data analytics and artificial intelligence pave the way for a new era, with the potential to boost financial inclusion and user interaction. However, these could also lead to exploitation. He voiced concerns about potential conflicts where advisors or broker-dealers may prioritize their own interests.
Gensler's speech also referenced the SEC proposal in July 2023 to mandate firms to scrutinize conflicts of interest from predictive data analytics interaction with investors. These conflicts need to be addressed and neutralized by the firms. It is yet unclear if Gensler will discuss ongoing legal disputes with Coinbase and Binance.US — both American cryptocurrency exchanges accused by the regulator of multiple alleged securities laws breaches.
Published At
9/27/2023 8:30:12 AM
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