What Crypto Users Need Know About Changes At The SEC
Acting SEC Enforcement Director Berger to Step Down. What Crypto Users Need Know About Changes At The SEC
Berger presided over the enforcement division when it launched the Ripple lawsuit.
* Berger assumed SEC’s top investigative post after former Director Stephanie Avakian’s departure at the end of 2020. He had been moving up the agency ranks since December 2017.
* SEC said Berger presided over the agency’s prosecution of the Telegram initial coin offering and its initiation of the unregistered securities suit against Ripple Labs.
* Enforcement staff pursued “meaningful relief” for victims of cryptocurrency fraud during Berger’s tenure, SEC said.
Gensler Said To Be Named SEC Chairman
Gensler has testified before Congress about cryptocurrency and blockchain on multiple occasions.
Gary Gensler, a Washington and Wall Street veteran who has closely studied the cryptocurrency field, is expected to be named chairman of the U.S. Securities and Exchange Commission (SEC) in the next several days by President-elect Joe Biden, two sources familiar with the matter told Reuters on Wednesday.
* A former chairman of the Commodity Futures Trading Commission (CFTC), Gensler served as a key financial regulator for former President Barack Obama, spearheading new derivatives rules after the 2008 financial crisis. He also served in the Treasury Department during the Clinton administration.
* More recently, he has also testified before Congress about cryptocurrency and blockchain on multiple occasions, pushing back against comparisons between cryptocurrencies and Ponzi schemes and declaring that the still-unlaunched libra token met the requirements of being a security under U.S. law.
* At MIT’s Sloan School, Gensler taught a course on cryptocurrencies and blockchains, calling the technology “a catalyst for change in the world of finance and the broader economy.”
Cryptocurrencies Face Greater Oversight Under Gensler-Led SEC
Gary Gensler’s expected nomination to lead the U.S. Securities and Exchange Commission is seen ushering in an era of greater federal oversight of the $1 trillion cryptocurrency market.
Gensler, who most recently taught about cryptocurrencies and their underlying technologies at the Massachusetts Institute of Technology, previously chaired the Commodity Futures Trading Commission and was a partner at Goldman Sachs Group Inc. He is known for pushing back at banks and corporations in search of greater investor protections.
In talks and editorials over the last several years, he’s advocated for a nationwide way to register and monitor cryptocurrency exchanges, instead of leaving oversight to the states.
That could have implications for online exchanges like Coinbase Global Inc., which is planning to go public. The SEC is also likely to continue to go after thousands of initial coin offerings, as Gensler has said he believes that most of these digital tokens are unregistered securities.
“It is good to have an ex-banker in there who is smart enough to recognize the value of Bitcoin and other cryptocurrencies to building wealth and value in society,” said Tim Draper, a billionaire venture capitalist who is a large investor in cryptocurrencies. “He will understand the importance of allowing innovation, while watching over banks who might try to restrain trade by blocking the use of superior currency.”
In a 2018 Bloomberg Television interview, Gensler said that the pure-cash cryptocurrencies like Bitcoin would “need more protection.” The world’s biggest cryptocurrency by market capitalization quadrupled last year, and has continued to surge in volatile trading since the start of 2021.
Gensler has also advocated for greater regulation of cryptocurrency exchanges. He didn’t respond to a request for fresh comment.
“If it gets broad adoption, if we really think the crypto world is going to be part of the future, it needs to come inside of public policy envelope,” Gensler said in the 2018 interview. “That means we need to guard against illicit activity. And yes, we need to protect investors. The crypto exchanges, big exchanges like Coinbase, need to come within the SEC or the CFTC.”
Greater oversight could lead to greater mainstream adoption, he said.
“I would say, you want some form of regulation, you want traffic lights and speed limits, because then the public is confident to drive on the roads,” Gensler said in the 2018 Bloomberg interview.
He has also long railed against illegal offerings of securities, which the SEC has been actively pursuing.
In December, the agency filed a lawsuit against Ripple Labs Inc. for issuing more than $1 billion in unregistered tokens XRP. In a 2019 keynote at Harvard Law School, Gensler said “I don’t think the SEC is going to leave many ICOs off the hook.”
In his 2019 Congressional testimony, Gensler appeared to favor projects like Facebook-led Diem, which used to be called Libra — an effort to create a cryptocurrency for payments. But he did suggest that the effort may need to have banking regulations applied to it.
“Gary is extremely dialed-in on the crypto markets and understands them extremely well,” said Nic Carter, co-founder of researcher Coin Metrics. “If his stated views are any indication of his priorities as commissioner, I would expect the SEC to continue with or even accelerate its agenda of discouraging unregulated securities issuance in the form of tokens.”
An Old Foe of Banks Could Be Wall Street’s New Top Cop
Gary Gensler is expected to be Joe Biden’s pick to take over the Securities and Exchange Commission. ‘He will do things that are controversial.’.
President-elect Joe Biden’s expected pick of Gary Gensler to lead the Securities and Exchange Commission could give Wall Street its most aggressive regulator in two decades.
The finance industry has thrived under the Trump administration’s light regulatory touch. Mr. Gensler, who sources familiar with the transition say is likely to be tapped by Mr. Biden for SEC chairman, has a history of shaking up the status quo. If he gets the assignment, he would be tasked with toughening regulation and enforcement of public companies and the finance industry.
He did that when he ran the Commodity Futures Trading Commission, a smaller regulatory sibling to the SEC, from 2009 to 2013. There, he steamrolled the opposition to write rules from scratch governing the markets for hundreds of trillions of dollars of derivatives. Some of these complex financial instruments were blamed for the 2008-09 financial crisis.
Lawyers, regulators and lobbyists say Mr. Gensler would likely be the most active, pro-regulatory SEC chairman since William Donaldson ran the agency in the wake of the corporate scandals of the early 2000s, or Arthur Levitt’s tenure during the Clinton administration. They also expect a renewed eagerness to pursue enforcement cases against major corporations and Wall Street banks. At the CFTC, Mr. Gensler earned a reputation for an aggressive, sharp-elbow style of management more reminiscent of Wall Street than Washington, at times even clashing with officials in his own party.
“He’s a totally different cup of tea than we’ve had at the SEC,” said Hal Scott, a professor of capital markets law at Harvard Law School. “He will do things that are controversial.”
Mr. Gensler’s nomination hasn’t been formally announced by the Biden transition team. People familiar with the matter say it is no coincidence that his name emerged only after Democrats won control of the Senate following runoffs in Georgia on Jan. 5. The irony is Mr. Gensler is a product of Goldman Sachs Group Inc., a Wall Street giant that attracts criticism from progressives. He made partner at Goldman at 30 and then served in the Treasury Department and led the CFTC after an 18-year stint on Wall Street. Since leaving the CFTC, Mr. Gensler has been teaching at Massachusetts Institute of Technology’s business school.
A spokesman for the Biden transition team declined to comment for this article. Mr. Gensler didn’t respond to requests for comment.
Mr. Gensler’s record at the CFTC fits with the Democratic Party’s progressive wing, which hopes to use the SEC as a lever for driving domestic policy goals. These include combating climate change and racial injustice, forcing more transparency around corporate political spending and tilting the balance of power from executives to workers and small investors.
But the firms the SEC regulates are hopeful Mr. Gensler’s understanding of finance and markets would make him a pragmatist when balancing progressive demands against the implications of causing widespread disruption.
Among Democrats’ top priorities are for the SEC to require more-comprehensive reporting from public companies about the risks they face from climate change or government efforts to curb it. They say financial disclosures should also include more information about companies’ diversity and worker pay. And Mr. Gensler is already facing calls to further tighten a 2019 rule that stopped short of requiring brokers to put their clients’ interests ahead of their own.
“We are really looking for someone to be bold,” said Lisa Gilbert, executive vice president at consumer-advocacy group Public Citizen, adding that Mr. Gensler has shown an ability to challenge entrenched interests.
Critics of the SEC in recent years have said it focused too much on helping companies raise capital and not enough on investor protections. Rick Fleming, the SEC’s in-house investor advocate, said in a Dec. 29 report that the agency “engaged in numerous rule-makings of a deregulatory nature” last year that “often had the effect of diminishing investor protections.”
Some have also called for the SEC to refocus enforcement efforts on large banks and hedge funds. Under recently departed chairman Jay Clayton, the enforcement program emphasized wrongdoing that harms less-sophisticated investors, including cryptocurrency scams, Ponzi schemes and investment advisers who fleeced clients with murky fees.
Mr. Gensler dealt with the big banks at the CFTC when he oversaw enforcement actions against banks accused of manipulating a key interest rate known as Libor.
Another target of Democrats may be private-equity firms and hedge funds, lightly regulated investment firms that are off limits to small investors. The firms captured 69% of the capital raised in 2019, while the regulated public markets accounted for 31%, according to SEC estimates.
At the CFTC, Mr. Gensler faced fierce opposition from Wall Street over his push to make trading of derivatives more transparent as required by the 2010 Dodd-Frank Act. He advanced a series of regulations that required so-called swaps to be traded on public platforms, in an effort to eliminate the unseen buildup of risks that precipitated the 2008-09 financial crisis.
Former colleagues said Mr. Gensler wasn’t afraid to say no to powerful financial firms in meetings at the CFTC and that he was unflappable in sometimes-heated congressional hearings. Mr. Gensler’s nomination could face opposition in Congress from Republicans, Ms. Gilbert of Public Citizen said.
He clashed at times with Republican members of the CFTC, who accused him of leaving them out of key discussions over proposed rule makings. He was accused of implementing rules too fast, exposing the agency to legal challenges. A Republican commissioner in 2013 said in a speech that lawsuits challenging CFTC regulations were evidence of a “flawed rule-making process that prioritized getting the rules done fast over getting them done right.”
But he also demonstrated an unusual ability to navigate the competing interests of industry, lawmakers and other regulators to churn out a prolific volume of work. That track record likely made Mr. Gensler a front-runner for the SEC nomination.
At the SEC, Mr. Gensler would have to manage a much larger staff—4,500 employees to the CFTC’s 700—and a five-member commission that tends to be more partisan. He also has fewer congressionally mandated reforms to tackle than during his tenure at the CFTC, which was dominated by implementation of the Dodd-Frank financial reforms.
“The policy agenda for the SEC is pretty obvious…the question is who can get it done, sequence and prioritize,” said Dennis Kelleher, a Biden transition team adviser who is president of Better Markets, a group that advocates for stricter Wall Street oversight. “Gary proved at the CFTC that he has the ability to operate in multiple arenas at the exact same time.”
Biden Team Announces Pick To Lead SEC
Biden’s pick to run the SEC has some serious crypto and blockchain chops.
President-elect Biden’s team recently unveiled additional folks it plans on nominating for various positions after the inauguration on Wednesday.
One key pick is Gary Gensler as Chairman of the Securities and Exchange Commission, or SEC, according to a statement from Biden’s transition team on Monday. On Jan. 12, Reuters reported on anonymous sourcing forecasting Gensler as Biden’s choice. Today’s statement from the Biden team confirms the President-elect’s expected choice.
“Gary Gensler served as chairman of the U.S. Commodity Futures Trading Commission from 2009 to 2014,” the statement said. Coming immediately after the financial crisis, Gensler’s term at the CFTC saw him enforcing the provisions of the nascent Dodd-Frank Act in commodities markets.
Formal nomination will have to wait until Biden actually takes office, and will further need confirmation from the U.S. Senate. January run-off elections in Georgia, however, secured the Senate for the Democrats.
Gensler also taught classes on blockchain and crypto at MIT. Having someone knowledgeable on the crypto and blockchain industry leading the SEC could pave the way for educated regulation and guidelines. The SEC has been critical for its role in regulating the initial coin offering market, which has quieted down significantly since the commission began treating many ICOs as unregistered public securities offerings.
Biden’s Wall Street Watchdogs Signal New Era of Tough Oversight
President-elect Joe Biden’s team of financial regulators is taking shape, with progressive favorites being chosen for the top jobs at the Securities and Exchange Commission and the Consumer Financial Protection Bureau — moves that mean Wall Street should prepare itself for a new era of tougher oversight and stricter rules.
Biden’s SEC pick, former Commodity Futures Trading Commission Chairman Gary Gensler, 63, is known for sparring with the industry as the nation’s top derivatives watchdog during the Obama administration and for his deep knowledge of finance as an ex-partner at Goldman Sachs Group Inc.
That means he not only knows how to mobilize a bureaucratic federal agency but also understands the often impenetrable ways that Wall Street makes money — and how firms use that complexity to turn regulation in their favor.
His top targets likely will include Chinese companies that list on U.S. stock exchanges while bypassing American regulations, the surge in trading by neophyte investors during the coronavirus pandemic, cryptocurrencies and pushing Corporate America to reveal more about workforce diversity and how climate change impacts bottom lines.
Biden’s pick for the consumer agency, Rohit Chopra, 38, will seek to revive an agency that progressives contend was put to sleep during the Trump administration.
Chopra also is an acolyte of Senator Elizabeth Warren, the Massachusetts Democrat who conceived of the CFPB and is a renowned Wall Street adversary. If he succeeds in turning the agency around, life will almost certainly get less pleasant for student lenders, for-profit colleges, payday lenders and credit-card companies that progressives say prey on consumers.
The pending nominations send a clear signal that the rule-cutting and lax enforcement that Wall Street has grown accustomed to during four years of President Donald Trump are over. Here’s an overview of what the pending appointments mean for the agencies and for the financial industry.
Robinhood and SPACs
Robinhood Markets and special purpose acquisition companies — or SPACs — were among the finance industry’s hottest phenomenons in 2020. Both are sure to draw Gensler’s attention.
Robinhood, with its popular smartphone app, rode a wave of Covid 19-fueled day trading to add millions of customers. But critics say the company represents a disturbing trend of brokerages encouraging less-sophisticated investors to take risks that they don’t understand — and Gensler is likely to face pressure from progressives to erect new guardrails.
Robinhood has disputed claims that its platform promotes a “gamification” of trading as an inaccurate depiction of its business, saying its goal is to “democratize” wealth creation and investing by enabling a new class of consumers to trade shares and other assets.
Critics, including former SEC Chairman Arthur Levitt, say what’s needed is an aggressive examination by the regulator of whether apps use technological nudges to inappropriately stimulate excessive and even addictive trading. Robinhood has also faced repeated calls to improve its customer service, something the firm says it’s doing.
There’s another concern that the Robinhood-led boom in retail trading is inflating a stock bubble that could pop, triggering steep losses for investors — something that also worries progressives.
SPACs, which list on public exchanges to raise money to buy companies, have already been drawing scrutiny from the SEC. The attention is a direct result of how hot they are, with the vehicles used to raise a record $79.2 billion from U.S. investors in 2020.
Jay Clayton, who stepped down as SEC chairman last month, has said he’s concerned that potential investors aren’t receiving appropriate disclosures about conflicts and insiders’ lucrative pay structures. That prompted the agency to launch a review, which would now fall to Gensler.
Volcker Rule and Private Equity
After the 2008 financial crisis, Gensler solidified his status with progressives by insisting on a tough version of the Volcker Rule. The regulation, which banned proprietary trading by Wall Street banks, was eased during the Trump administration. Goldman and other firms will now be watching to see whether Gensler leads an effort among regulators to bolster its restrictions.
Another area in which Gensler is likely to square off with big names in finance is over the SEC’s approach to regulating private-equity firms. During the Trump era, the SEC sought to remove regulatory barriers that prevent private equity from raising money from retail investors. Progressives are hopeful that Gensler will move in the other direction, by bringing more transparency to buyout firms, which Warren and other lawmakers blame for loading companies with unsustainable debt burdens and cutting jobs.
A Crackdown on Chinese Stocks
One area that will demand Gensler’s attention is rising tensions between the U.S. and China — fighting that is now being waged in financial markets.
Congress passed legislation late last year that could lead to Alibaba Group Holding Ltd., Baidu Inc. and other Chinese companies getting kicked off of U.S. stock exchanges if they continue their non-adherence to American auditing rules.
At issue are longstanding American requirements that all publicly traded companies in the U.S. allow their auditors to be inspected by the Public Company Accounting Oversight Board. Gensler will be responsible for writing rules that make Chinese companies comply. Their penalty is possible ejection from U.S. markets.
The crackdown would follow a separate one already initiated by the Trump administration, which issued an executive order in November that requires American investors to sell their stakes in Chinese companies deemed a threat to U.S. national security.
New Rules For Crypto
Bitcoin is on a tear again, having surged roughly four-fold last year. That means it and other cryptocurriencies are likely to get renewed attention from Gensler’s SEC.
He’s quite familiar with the industry, having taught a class about it at the Massachusetts Institute of Technology, and has called for more regulation.
Some in the industry argue that more oversight wouldn’t necessarily be a bad thing because, right now, many institutional investors shy away from the space, as they see it as akin to the Wild West. As a result, stiffer rules might bring more capital flows to digital tokens.
Environment And Diversity
Progressives have long contended that the SEC should have just as strong a role in responding to climate change as more obvious agencies such as the Environmental Protection Agency.
A change at the top of liberals’ wish list is for the SEC to require public companies to boost disclosures of how a warmer planet and less-reliance on fossil fuels could impact profits, a move that could hit oil companies particularly hard.
Gensler could show he’s serious about such concerns by prioritizing whats known as environmental, social and governance investing, or ESG. One way he may do that is by establishing a new SEC office that’s dedicated to ESG issues.
The diversity of C-Suites and public companies’ employees is also a top focus for progressives, who want the SEC to force businesses to disclose more information on race and gender.
Chopra’s Quick Fix
One reason Chopra was picked for the CFPB, progressives say, is that he’s uniquely qualified to get a fast start in reversing some of Trump’s policies on day one.
Since he already holds a Senate-confirmed post as a Democratic member of the Federal Trade Commission, federal law allows him to join the CFPB immediately as its acting chief. In such an arrangement, he would be able to retain his position at the FTC and run the CFPB for about 300 days before the Senate signs off on his nomination.
While an official nod from the Senate is likely with Democrats poised to take control of the chamber, the several weeks or months it might require for confirming a CFPB chief is much longer than progressives are willing to wait.
The regulator’s shift under Trump has been impossible to miss. Since the outgoing president’s appointees took over in late 2017, it has imposed just a single fine against one of the U.S.’s six largest banks — a $500 million penalty against scandal-ridden Wells Fargo & Co. for allegedly overcharging auto lending and mortgage customers.
Banks from Wall Street to Main Street are expecting the CFPB to review the controversial — and lucrative — practice of lenders penalizing depositors when they spend money that they don’t have in their accounts. Known as overdraft fees, such charges generate some $12 billion annually for U.S. banks.
Consumer advocates also want Biden’s incoming CFPB chief to bring back an Obama-era rule that required payday lenders to assess prospective borrowers’ abilities to repay their loans.
Companies that provide short-term credit such as Enova International Inc., Curo Group Holdings Corp. and Elevate Credit Inc. could come under pressure, Height Capital Markets analyst Edwin Groshans told clients earlier this month.
Bitcoin Dips After Gensler Says SEC Must Root Out Crypto Fraud
Cryptocurrency enthusiasts exhibited a bit of nerves during Tuesday’s Senate confirmation hearing for Gary Gensler, the nominee for chairman of the U.S. Securities and Exchange Commission.
Bitcoin dipped to the lowest levels of the day after Gensler said that insuring that cryptocurrency markets are free of fraud and manipulation is a challenge for the agency. The largest cryptocurrency declined as much as 3% to $47,341 in New York trading. It has jumped about 65% since December.
Gensler, who served as a Commodity Futures Trading Commission chairman during the Obama administration, has been viewed as a strong advocate for digital assets. He serves as a senior advisor to the MIT Media Lab Digital Currency Initiative and teaches about blockchain technology and digital currencies.
State of Crypto: How SEC Chair Gary Gensler Could Differ From Predecessor Jay Clayton
Gary Gensler will testify before the U.S. Senate Banking Committee today for a confirmation hearing on his nomination to lead the SEC.
Gary Gensler ran the Commodity Futures Trading Commission (CFTC) after the 2008 financial crisis. Now, he’ll get a chance to run its securities-regulating counterpart.
Former Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler has been nominated to run the Securities and Exchange Commission (SEC) by President Joe Biden. Gensler unites a pro-regulation history with a pro-crypto viewpoint, and could finally implement the regulatory clarity many in the industry have desired.
In this, he’s likely to depart from predecessor Jay Clayton, who repeatedly said he believed initial coin offerings are securities but did not provide much guidance on when or how tokens might be classified as something other than a security.
Today, the U.S. Senate Committee on Banking, Housing and Urban Affairs will hold a hearing to consider his nomination for chairman of the SEC.
Why It Matters
Should he be confirmed, Gensler will shape crypto policy over the next several years, though it’s an open question if the industry will love the rules he implements. Under his tenure, the CFTC approved nearly 70 rules or pieces of guidance, and he may just regulate the hell out of crypto. He told the Senate Banking Committee he intends to continue focusing on consumer protection at the SEC.
“We have seen that when the SEC does its job – when there are clear rules of the road and a cop on the beat to enforce them – our economy grows and our nation prospers.,” Gensler said in his prepared remarks.
Companies are already hinting at or have announced plans to file to launch a bitcoin exchange-traded fund (ETF), a retail-accessible product that the industry has been pursuing for years. Some in the industry hope that under Gensler the SEC might finally create “bright-lines” regulatory guidance that clearly defines when a token is a security and when one is not.
He’ll also oversee litigation against companies that SEC staff believe have violated federal securities laws, including the high-profile lawsuit against Ripple Labs.
Breaking It Down
Like many of Biden’s nominees, Gensler was an official in former President Barack Obama’s administration. As CFTC chair, he had a major role in the Dodd-Frank Act, which sought to bring some consumer-focused reforms to Wall Street. Gensler has been a part of Team Biden since the president won the White House last year; Biden announced Gensler would lead his Wall Street reform team just days after news organizations projected his victory.
Many of his views on the digital asset space can be found in the transcripts of his lectures at MIT, some of which my colleague Danny Nelson went through. Gensler gave these lectures in 2018, though he has remained active in the industry as a member of the MIT Digital Currency Initiative.
He’s also spoken out about blockchain over the past several years. Below is a summary of his views on some issues that are important to the crypto industry.
A day before former SEC Chair Jay Clayton stepped down, the securities regulator filed a lawsuit alleging Ripple Labs, the San Francisco startup closely associated with the XRP cryptocurrency, had violated securities laws for over seven years by selling XRP in unregistered securities transactions.
Other senior SEC staff, including now-former Director of Enforcement Stephanie Avakian, also departed around that time. If approved, Gensler will inherit an agency overseeing one of its highest-profile crypto cases.
In his own words, Gensler believes XRP is “a non-compliant security,” though he said (again, this is from 2018) that it would require the courts to make that determination, “whether it’s appellate courts or the Supreme Court.”
He went on to explain that he believes XRP meets the requirements of the Howey Test, the Supreme Court case often used to determine whether something is a security.
The SEC has spent years suing companies that conducted initial coin offerings (ICOs) without registering their tokens as securities, often because they raised money specifically to build a project that could issue a token that investors could re-sell at a profit.
Gensler raised concerns about information asymmetry in one of his lectures, noting that U.S. law is designed to protect investors and consumers. He’s also expressed concern that ICOs, which were numerous in 2018, might violate securities laws, particularly given the projects that launched without having any code or tokens developed.
“Jay Clayton, who runs the SEC, has said in congressional testimony in February that he hadn’t met an ICO that he didn’t think was a security … But it wasn’t quite enough,” Gensler said.
He said early tokens may fail, but as some projects go live they could provide a roadmap for how future projects could succeed, pointing to Telegram (which ended its blockchain ambitions after the SEC sued) and Filecoin (which went live last year).
Central bank digital currencies (CBDCs) are becoming increasingly popular, with multiple central banks now trialing different types of sovereign digital currencies. In Gensler’s view, CBDCs could bring efficiencies to cross-border remittances or local payments.
Central Banks Have To Understand Why They Would Launch A CBDC And What The Benefit Would Be, He Said, Explaining:
“The strategic question for the central banks is, should we allow direct access to digital reserves? We have this intermediated central bank digital reserve called bank deposits, but should we have something direct to us? Like cash is a direct relationship between the central bank and the holder.”
Still, in that same lecture Gensler noted that a CBDC doesn’t necessarily need to rely on a blockchain platform, a view echoed by Boston Fed and MIT Digital Currency Initiative researchers looking into different technology bases that could support a digital dollar.
In 2019 Gensler participated in a wargaming exercise that looked at a hypothetical future where the digital yuan, China’s effort at a central bank digital currency, was live and used by the government of North Korea to bypass U.S. sanctions. The premise of the exercise was the U.S. may need to revisit how it enforces its sanctions regime, which basically seeks to lock individuals or entities out of the global financial system.
“I think it’s good to have a healthy debate about where we stand with the U.S. dollar, our reliance on SWIFT – the international messaging system – for a tool in our sanctions regime that we the U.S. have,” Gensler told CoinDesk ahead of the exercise. “We’re using it as a tool in geopolitics, a digital form of blockade that in the 17th and 18th and even in the 19th century, what one would have to do with ships we’re doing digitally.”
Gensler further noted during his MIT lectures that other countries could use CBDCs as part of an effort to bypass U.S. sanctions, citing Venezuela and Iran, both of which had announced efforts to create sovereign digital currencies at the time.
Does Crypto Fund Terrorism?
Last week, the U.S. House Financial Services Committee’s Subcommittee on National Security, International Development and Monetary Policy held its long-awaited hearing on domestic terror financing. You can read my preview and summary but my immediate impression was that it seems good crypto wasn’t being scapegoated as this tool for terror financing, despite multiple statements of concern by Treasury Secretary Janet Yellen and other lawmakers.
The hearing almost went in that direction at the beginning, when Rep. James Himes (D-Conn.), the subcommittee’s chair, asked the witnesses to speak to whether cryptocurrencies were enabling easier terror financing.
Instead, the witnesses compared cryptocurrencies to systems like PayPal or GoFundMe, and called for better moderation efforts by the companies behind these tools.
That said, the proposed FinCEN counterparty rule was raised multiple times, and so it is worth keeping an eye on any next steps here.
Robinhood, GameStop and Whether Blockchain Fixes This™
I wasn’t planning on talking about the Robinhood-GameStop thing again but the Depository Trust and Clearing Corporation (DTCC) published a proposal to shorten settlement times from T+2 to T+1, on the same day GameStop’s stock jumped like 100%. So let’s take a quick look.
First Off: If the bit about T+2 to T+1 didn’t make sense, read this article first, then come back to the newsletter.
Okay, so moving to T+1 requires industry agreement, meaning participants have to get together and say, “We think one-day settlement makes financial and operational sense and that we are all capable of handling it.” Robinhood CEO Vlad Tenev has come out in favor of shortened settlement times, blaming T+2-related margin requirements for why his company had to suspend trading in volatile securities last month.
The DTCC said in a blog post after that incident that it didn’t have the authority to unilaterally make that decision, but now “based on extensive industry engagement conducted throughout 2020,” it seems the industry could be open to faster settlement.
The DTCC has looked into whether blockchain in particular can offer a T+0/1 settlement solution through its Project Ion last year. In short, a distributed ledger-based settlement system can effectively shorten settlement times, though the Project Ion proof-of-concept paper noted that its PoC focused on usability over scalability.
“It’s important to note that NSCC and DTC can support T+1 and even same-day (T+0) settlement today, using existing technology. In fact, NSCC clears T+1 and T+0 trades every day and DTC is already a T+0 settlement platform. However, the current T+2 settlement cycle is a convention of market practice,” last week’s white paper said.
Gary Gensler’s confirmation hearing is today, as is that of CFPB Director-Nominee Rohit Chopra. I’ll be live-tweeting the hearing (shameless plug here). As of press time, there’s still no formal nomination for the next heads of the CFTC or OCC.
Former SEC Chairman Jay Clayton Joins Crypto Advisory Board
Clayton, who stepped down from the SEC in 2020, joins the regulatory advisory council of One River Asset Management.
Three months after resigning from the United States Securities and Exchange Commission, or SEC, Jay Clayton has joined an advisory board of crypto investment manager One River Asset Management, signaling a changing of the guard for the former securities regulator.
Clayton, along with Kevin Hassett of The Lindsey Group and Jon Orszag of Compass Lexecon, joins One River Asset Management’s newly formed academic and regulatory advisory council, the company announced Monday.
Although Clayton’s exact role within the advisory group wasn’t specified, One RIver CEO Eric Peters said his goal was to bring together distinguished individuals with “varying regulatory and policy experience.”
“We were impressed by Eric’s willingness to hear our varying views on the digitization of our monetary, banking and capital markets ecosystem and One River’s commitment to transparency,” Clayton said.
Clayton served a three-and-a-half-year stint at the SEC before resigning on Dec. 23, 2020. His tenure was defined by a substantial increase in monetary remedies, possibly to the tune of over $14 billion, and returning billions to harmed investors.
He was also present during the last cryptocurrency bull market when Bitcoin (BTC) mania reached mainstream investors. In 2019, Clayton warned investors they would be “sorely mistaken” if they expect that the cryptocurrency would be tradeable on major exchanges without more stringent regulations in place.
One River Asset Management emerged as a pivotal Bitcoin player in late 2020 by scooping up $600 million in crypto assets. At the time, the firm said it expected to own roughly $1 billion worth of BTC and Ether (ETH) by the first half of 2021. Those targets may have already been met, given the rapid appreciation of crypto assets so far this year.
Former SEC Chair Jay Clayton Tips New Bitcoin Regulations Are Coming
The former SEC chairman warns that regulation will come both directly and indirectly.
Former US Securities and Exchange Commission Chair Jay Clayton has stated that Bitcoin has not been classified as a security for a long time.
But speaking on CNBC’s Squawk Box on March 31, Clayton warned that its status as a non-security still does not protect it from the imposition of new regulations which, he warned, could be coming soon.
“Where digital assets land at the end of the day–will be driven in part by regulation both domestic and international, and I expect that regulation will come in this area both directly and indirectly,” says Former SEC Chairman Jay Clayton on #bitcoin. pic.twitter.com/voWcgCFqOH
— Squawk Box (@SquawkCNBC) April 1, 2021
Host Andrew Ross Sorkin pointed out that under Clayton’s watch the SEC did not take a position on Bitcoin regulation. Clayton responded that was because the asset was declared not to be a security before he even took up his position as the head of the regulatory body.
“Bitcoin was decided to be not a security before the time I got to the SEC. Therefore, the SEC’s jurisdiction over Bitcoin was rather indirect.”
Clayton has remained in the industry following his departure from the SEC in December 2020 and currently advises One River Asset Management on cryptocurrencies.
Although he professes not to have any special insights into what new laws are coming from his time heading up the SEC, he believes the regulatory environment is due for a shake up.
“Where digital assets land at the end of the day […] will be driven in part by regulation—both domestic and international—and I expect, and I’m speaking as a citizen now, that regulation will come in this area both directly and indirectly whether it’s through how these are held at banks, security accounts, taxation and the like. We will see this regulatory environment evolve.”
Clayton’s comments come just a week after billionaire hedge fund manager Ray Dalio warned that the U.S. may ban Bitcoin outright just as they did with gold in the 1930s.
His comments about Bitcoin’s status as a non-security are also interesting in light of Ripple’s appeals to the SEC for documents from the agency to determine how exactly it came to the conclusion that Bitcoin and Ethereum were not securities.
The company and its backers have repeatedly argued that XRP is not a security however the SEC believes it is markedly different due to being morcentralized. Former SEC attorney Marc Powers told Cointelegraph that the agency is executing significant overreach in its case against Ripple and its executives.