Chairman of the U.S Securities and Exchange Commission (SEC), Gary Gensler opined that the crypto market should not be treated differently from other capital markets just because it leverages different technology.
In a recent Op-ed, Gary Gensler affirmed that federal securities laws designed to protect investors are also subjected to the crypto market.
He stated in the editorial, “Recent market events show why it is critical that crypto firms comply with securities laws. In recent months, some crypto lending platforms have frozen their investors’ accounts or gone bankrupt. When it comes to bankruptcy, these investors have to get in line at the court.”
According to Gary Gensler, the federal government shouldn’t be concerned about the kind of cryptocurrencies or assets that people invest in when using crypto applications like lending platforms. Instead, their concern should be the use of those assets by crypto platforms to decide “what protections are provided by the law.”
Furthermore, crypto markets like lending platforms and crypto investment firms should cover additional protection to prevent fraud.
Gary Gensler slammed that crypto platforms can not dodge compliance for investor protection with the label of a lending platform, a crypto exchange, or a decentralized finance platform.
The U.S Supreme Court already decided that the economic realities of a product determine whether it is a security under the securities laws and not labels.
To convey exact meaning, Gary Gensler stated an example of the crypto lending platform, BlockFi. It is one of the companies behind Three Arrow Capital’s liquidation. He stated that BlockFi borrowed over $10 billion worth of crypto from investors with the variable interest rate offers. This lending product is considered a security.
Also, BlockFi invested these borrowed assets into the pool, packaged them into loans to institutional borrowers, and invested funds in other securities. These various investments into different entities make it an investment company.
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He writes, “The issue was what it did with the borrowed assets and what it didn’t do as a firm: provide the required disclosures to investors.”
He also added, “Compliance with our laws protects the investing public. Unfortunately, some platforms that offer crypto lending aren’t complying with the applicable requirements.”
Gary Gensler made clear that they “dispense” with the idea that crypto lending should be out of regulations.
He opined that the crypto lending platform needs to comply with regulations to protect “investors and increase trust in our markets.”