SEC Chairman Outlines Regulation of Crypto Assets Relating to Security-Based Swaps

The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has clarified how cryptocurrencies falling under security-based swaps are regulated. He affirmed that platforms operating in the centralized or decentralized finance space are implicated by the securities laws.

SEC’s Regulatory Approach to Cryptocurrency

SEC Chairman Gary Gensler talked about cryptocurrency regulation Wednesday before the American Bar Association Derivatives and Futures Law Committee Virtual Mid-Year Program.

After discussing various topics, including security-based swaps, credit default swaps, and registration of their dealers and participants, he proceeded to talk about cryptocurrency.

“I’d briefly like to discuss the intersection of security-based swaps and financial technology, including with respect to crypto assets,” he said. “There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives.” The SEC chairman emphasized:

Make no mistake: 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 platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

He continued: “If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.”

Gensler further noted:

We’ve brought some cases involving retail offerings of security-based swaps; unfortunately, there may be more. We will continue to use all of the tools in our enforcement toolkit to ensure that investors are protected in cases like these.

The SEC has taken about 75 enforcement actions against individuals and companies in the crypto industry so far. However, Gensler said more companies are in violation of securities laws.

Gensler previously emphasized the need to regulate cryptocurrency exchanges. He even urged Congress to step in and pass legislation to protect investors. However, the SEC left bitcoin and cryptocurrency off its regulatory agenda for 2021.

Early this month, U.S. Senator Elizabeth Warren asked the SEC to use its full authority to address the risks associated with crypto assets. She gave Gensler until July 28 to provide answers on the SEC’s authority to protect consumers investing and trading in cryptocurrencies, and determine what future congressional action was needed.

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