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(Kitco News) - Evidence that the U.S. has finally gotten serious about regulating the crypto industry can be found in President Joe Biden’s request to allocate a record $2.4 billion in funding for the Securities and Exchange Commission (SEC), a contribution that SEC Chair Gary Gensler is more than happy to accept.
“Rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space,” Gensler said in his prepared testimony at Wednesday’s budget meeting with the House Appropriations Committee. “Addressing this requires new tools, expertise, and resources.”
He added that additional funding was needed to keep up with the rapid pace of innovation and to help limit “misconduct” in the crypto industry.
The increased budget would allow the SEC to hire 170 additional staff, Gensler said, with most of those positions in the agency’s enforcement and examination divisions. He went on to note that the 2022 budget enabled the agency to increase its staff levels above its headcount from 2016 for the first time, but the SEC remained stretched thin.
“As the cop on the beat, we must be able to meet the match of bad actors,” he said. “Thus, it makes sense for the SEC to grow along with the expansion and increased complexity in the capital markets.”
The SEC chair reiterated his stance that the crypto industry is akin to the wild west and “rife with noncompliance,” saying that crypto investors are putting their “hard-earned assets at risk in a highly speculative asset class.”
In 2022, the agency doled out more than 750 enforcement actions that “resulted in orders for $6.4 billion in penalties and disgorgement,” with 30 of those actions directly related to the crypto industry. While crypto enforcement actions represented only 4% of the actions taken, there was a 36% increase in the number of enforcement actions as compared to 2021, which saw 22 actions announced. Fines issued for crypto offenses amounted to $242 million.
Gensler also reiterated his stance that most cryptocurrencies are securities and said overseas entities that sell to U.S. investors must come under their securities law. “If you’re touching U.S. investors, selling these tokens to U.S. investors then you come under either the securities laws” or CFTC regulations, he said
According to a report from TheBlock, following the House Appropriations Committee hearing, Gensler was asked by reporters about the ongoing debate regarding the classification of cryptocurrencies, to which he replied that the SEC takes the lead in defining what security is, not necessarily legislation. He added that existing securities laws “cover most of the activity that's happening in the crypto markets.”
"I think there is one agency — the Securities and Exchange Commission, overseen by two committees — the House Financial Services and Senate Banking, and the courts that define what a security is and not individual crypto exchanges selecting that," he said.
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When asked about the efforts by lawmakers to pass legislation designed to regulate the crypto industry, Gensler replied, “I think many of the legislative vehicles would, if adopted, would undermine the securities remit.”
Senators Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) plan to reintroduce legislation next month that supports the Commodity Futures Trading Commission (CFTC) having control over digital asset commodities such as Bitcoin.
And on the topic of Binance, which was sued by the CFTC on Monday, Gensler declined to comment on any plans the SEC may have in regards to bringing its own charges against the world's largest crypto exchange, but he did note the agency’s actions against other exchanges.
