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SEC Chair Says Industry Won’t Survive Without Full Disclosure

2 mins
Updated by Ryan James
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In Brief

  • SEC Chair Gary Gensler said that crypto companies must adequately disclose aspects of crypto investment products.
  • Gensler, long a promoter of existing securities laws as sufficient for crypto, has not seen the need for clearer guidance despite mixed messages sent by enforcement actions.
  • SEC Commissioner Hester Peirce claimed that the SEC didn't engage Kraken before shutting down its staking service.
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Chairman of the Securities and Exchange Commission (SEC) Gary Gensler said in an interview on CNBC that crypto companies will not survive unless they comply with free and fair disclosure rules.

Gensler said that “the runway is getting “awfully short” for crypto firms that continue to evade full disclosure performed by major tech companies like Apple.

CNBC anchor Andrew Ross Sorkin asked Gensler why the SEC’s preferred method of regulation by enforcement, coupled with accounting rules and inspections, was not codified in clear policy directives.

“We’re using all available tools. We’re talking directly to market participants. We take the meetings and we say, this is how you comply,” Gensler replied. He also signaled crypto companies to decouple “bundled products” from business models with clear conflicts of interest.

Gensler, a Democrat, has long maintained that the Securities Act of 1933 is sufficient to regulate the crypto industry. He has not publicly engaged lawmakers on draft regulations of crypto bills angling for attention.

This approach contrasts with the response of other agencies. Commodity Futures Trading Commission chair Rostin Behnam indicated a willingness to work with Congress on regulating crypto in 2023.

Commissioner Peirce Denies SEC Engaged Kraken Before Enforcement

Despite Gensler’s claims of sitting down with industry participants, SEC Commissioner Hester Peirce said in Feb. 10, 2023 speech, that the agency did not consult crypto firm Kraken before it cracked down on the company’s crypto staking service.

In an earlier blog post, Commissioner Peirce dissented from the SEC’s assertion that Kraken should have registered its staking service with the agency. She elucidated that there are no clear directives on how Kraken would have registered the product.

Whether each staking product required separate registration, or whether one registration covers the whole program needed clarification, she argued.

Peirce called the enforcement, for which Kraken paid a settlement fee of $30 million, “paternalistic and lazy,” for not previously issuing guidance. She added that enforcement by action would not clarify the disclosure requirements of other staking products constructed differently.

The SEC’s crackdown on Kraken follows several attempts by U.S. financial institutions to make life difficult for the crypto industry.

In a recent blog post, crypto venture capitalist Nic Carter likened the increasing reluctance of the banking sector to engage crypto firms as politically reminiscent of Operation Choke Point.

Operation Choke Point was a program during the Obama administration designed to minimize certain industries by denying banking relationships. While the program was discontinued, Carter argues that it predisposed banks to assign higher risk to politically polarizing industries.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.

Top crypto platforms in the US | March 2024

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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