U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, U.S., September 14, 2021.
Evelyn Hockstein | Reuters
WASHINGTON —Securities and Exchange Commission Chairman Gary Gensler faced a barrage of criticism from House Republicans on Tuesday over his agency's crackdown on cryptocurrency trading platforms.
In more than four hours of testimony before the House Financial Services Committee, Gensler stood firm on his view that crypto trading platforms and exchanges should abide by strict U.S. securities laws.
"All of these companies should come into compliance with the law, and until they do, we will continue to pursue them as the cop on the beat, and investigate and follow the facts and law," Gensler told the panel.
Republicans raised many of the points the crypto industry regularly makes about regulation, arguing that the SEC's disclosure rules were designed to regulate traditional markets, and they are ill suited to decentralized digital currency exchanges.
Without legislation from Congress that creates a new regulatory framework specifically for crypto, the companies argue, digital platforms will move overseas to avoid running afoul of U.S. regulators.
This could weaken America's status as a hub for cryptocurrency innovation, they argue, and potentially cede that position to U.S. adversaries.
"Your approach is driving innovation overseas and endangering American competitiveness," committee chairman Rep. Patrick McHenry, R-N.C., told Gensler at the start of the hearing.
"Regulation by enforcement is not sufficient nor sustainable," said McHenry. "You're punishing digital asset firms for allegedly not adhering to the law when they don't know it will apply to them."
Gensler, however, rejected the notion that crypto trading platforms don't know how to interpret U.S. securities laws.
"We have a whole field in crypto that understands the law, and if they are providing exchange services, broker dealer services, clearing services of crypto security tokens, they should come into compliance," Gensler said in response to a similar point later in the hearing.
Throughout his testimony, Gensler declined to discuss the specifics of its investigation into the collapse of FTX, and more recently, its notice to Coinbase last month that the crypto exchange is under investigation.
The SEC has ramped up its enforcement of the crypto industry, bearing down on companies and projects that it alleges are hawking unregistered securities.Reports first surfacedof an SEC probe into Coinbase in mid-2022.
Facing the House committee on Tuesday, Gensler showed little sympathy for the challenges faced by crypto exchanges operating in the U.S.
"We have a clear regulatory framework built up over 90 years," he said. The exchanges are "just a bunch of intermediaries in this market that think they have a choice. They don't have a choice. They're noncompliant generally, and they need to come into compliance," he added.
The prospect of legislation to regulate digital currencies has faded this year, drummed out by the showdown over the debt ceiling and the House Republican majority's focus on issues like energy and countering the multi-pronged threat from China.
Nonetheless, major crypto industry groups are planning to spend millions of dollars this year to lobby Congress and the Biden administration.
