- Securities and Exchange Commission Chair Gary Gensler's letter to Sen. Elizabeth Warren warns that investors are not adequately protected in cryptocurrency markets.
- The letter's release comes as the industry failed to strip new tax-reporting requirements for cryptocurrency brokers out of the Senate's infrastructure bill.
Sen. Elizabeth Warren is keeping up the pressure to rein in cryptocurrency exchanges.
On Wednesday she released the letter Securities and Exchange Commission Chair Gary Gensler wrote in response to her July 7 inquiry that he address the highly opaque and volatile cryptocurrency market and determine if Congress needs to act.
"Right now, I believe investors using these platforms are not adequately protected," Gensler said in his response to the Massachusetts Democrat, dated Thursday.
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The letter echoes Gensler's comments made to the Aspen Security Forum two days earlier, where he called the asset class "rife with fraud, scams, and abuse," and asked Congress for additional authority to keep crypto "transactions, products and platforms from falling between the regulatory cracks."
The letter's release comes as the industry failed to strip new tax-reporting requirements for cryptocurrency brokers out of the Senate's infrastructure bill. Those new requirements could help pay for $1 trillion in spending called for in the bill by generating an estimated $28 billion in revenues for the government over 10 years.
In the letter, Gensler explains that the cryptocurrency market is made up of platforms where people can trade or lend tokens on centralized and decentralized platforms. And he warns that stablecoins — a type of cryptocurrency pegged to an asset like the dollar — may be used on these platforms to sidestep traditional banking rules, "anti-money laundering, tax compliance, sanctions, and the like."
"It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime," Gensler writes.
To date, the SEC has used its enforcement authority to establish itself as the key cryptocurrency regulator, winning cases involving fraud and unregistered securities offerings. He pledged to continue to use the current law to pursue fraud and ensure tokens are registered as securities, which makes them subject to disclosure rules and regulatory oversight.
"I'm glad SEC Chair Gensler agrees and has directed the SEC to use its full authority to address these risks, and that he has also identified where additional regulatory authority may need to be granted by Congress," Warren said in a statement, also promising to work on legislation to close the regulatory gaps.
Warren, a member of the Senate Banking Committee and chair of its Subcommittee on Economic Policy, has also called on the Financial Stability Oversight Council to use its authority to take the lead to develop a comprehensive and coordinated approach to regulating cryptocurrencies.