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Be 'flexible' with token issuers, SEC Chair Gensler tells staff

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(Kitco News) - The “vast majority” of cryptocurrencies in existence are unregistered securities, said Securities and Exchange Commission (SEC) Chair Gary Gensler in his prepared statement ahead of tomorrow's Senate Committee on Banking, Housing, and Urban Affairs meeting.

Gensler asked the staff at the SEC to work directly with token issuers to help them come into compliance with existing laws. 

“I’ve asked the SEC staff to work directly with entrepreneurs to get their tokens registered and regulated, where appropriate, as securities. Given the nature of crypto investments, I recognize that it may be appropriate to be flexible in applying existing disclosure requirements,” Gensler said in his statement. 

Regarding stablecoins Gensler noted that they have features that are similar to money market funds, other securities, and bank deposits, and they may need to be registered as securities depending on their characteristics.  

“Depending on their attributes, such as whether these instruments pay interest, directly or indirectly, through affiliates or otherwise; what mechanisms are used to maintain value; or how the tokens are offered, sold, and used within the crypto ecosystem, they may be shares of a money market fund or another kind of security,” the SEC Chair said. “If so, they would need to register and provide important investor protections.”

Gensler also noted that since many of the centralized and decentralized platforms that currently exist offer access to tokens that are considered securities. They will need to “register with the SEC in some capacity.” 

“I’ve asked staff to work with crypto intermediaries to ensure they register each of their functions – exchange, broker-dealer, custodial functions, and the like – which could result in disaggregating their functions into separate legal entities to mitigate conflicts of interest and enhance investor protections,” Gensler said.

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The SEC chair has also directed staff to reach out to firms that have been operating in other well-regulated markets and now want to enter the crypto market to provide services to investors in the crypto market in a regulatory-compliant manner. 

As for the small number of tokens that are not considered to be security tokens, such as Bitcoin and Ethereum, Gensler indicated that he has asked his staff to “recommend a pathway to allow both the crypto security and crypto non-security tokens to trade versus or alongside one another.”

In closing, the SEC boss indicated that he looks forward to working with Congress on crafting legislation for the crypto industry moving forward “while maintaining the robust authorities” that the SEC currently has. 

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