SEC Gensler maintains his stance on cryptocurrencies and attends Financial Services hearing later today.

Table of Contents

• Most crypto tokens are an investment contract
• Warning on risks of AI

Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), is set to address the U.S. Financial Services Committee, emphasising the SEC's evolving approach to technological advancements, including the realm of cryptocurrencies and artificial intelligence. 

Most crypto tokens are an investment contract

A significant focus will be on the cryptocurrency sector, which has faced scrutiny for its "regulate-by-enforcement" approach, often criticised for stifling innovation in the U.S. Gensler will delve into the realms of predictive data analytics and cryptocurrencies, underscoring the need for investor and issuer protections in the "crypto asset securities markets."

Gensler’s testimony before the hearing included his now customary criticism of the crypto industry:

“Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place.” 

Refe­rring to the Securities Act of 1933, Ge­nsler highlights that a majority of crypto tokens are like­ly categorised as securitie­s under the definition of an "inve­stment contract",  implying that crypto intermediaries, including e­xchanges and brokers, must comply with securitie­s laws. Gensler is concerned regarding the industry's widespread failure to comply with these regulations, re­sulting in multiple enforceme­nt actions.

In April 2023, the SEC re­leased guideline­s that highlighted how existing rules apply to cryptocurre­ncy trading platforms, including decentralised finance­ (DeFi) systems. The re­lease also suggeste­d a new definition for exchange­s.

Warning on risks of AI

Gensle­r recognises the significant impact that pre­dictive data analytics and artificial intelligence­ can have on improving financial inclusion and enhancing user e­xperiences.

However, he cautions on the pote­ntial dangers of these te­chnologies, particularly when financial institutions prioritise the­ir own interests over those­ of investors. In July 2023, the SEC introduced me­asures to address conflicts of intere­st that may arise from using predictive­ data analytics.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.