SEC Chair Says Crypto Intermediaries Are Rife With Conflict and Urges Compliance

The US Securities and Exchange Commission stands ready to help crypto intermediaries come into compliance, said the agency’s Chair Gary Gensler.

Gensler spoke Monday at the Atlanta Fed’s 2023 Financial Markets Conference, following rising tension between the regulator and exchanges on how to go about registering with the agency.

“I would say that their business models though tend to be built on noncompliance,” Gensler said. 

Their business models tend to be built on taking customer funds and commingling, Gensler added.

“They’re rife with conflicts,” he said.

Gensler has called on crypto platforms to register with the agency, labeling most cryptocurrencies as securities.

Crypto exchanges, such as Coinbase have pushed back, saying that it doesn’t list securities after being served a Wells Notice in March.

A Wells notice is a letter from SEC staff saying that the agency is ready to recommend formal charges to the five-member commission.

Coinbase has said that the agency has not complied with the law by providing companies like it a way to register.

“We’ve repeatedly asked the SEC for its own views on how securities laws might apply to Coinbase and our industry. To be candid, we’ve mostly gotten silence in response,” said Coinbase’s Chief Legal Officer Paul Grewal in a video response to the SEC’s Wells Notice. 

Crypto exchange Bittrex US filed for bankruptcy earlier this month after the SEC said the platform was running an unregistered securities exchange. 

In early April, Bittrex announced that it is shutting down US operations due to an uncertain regulatory environment and asked customers to withdraw their assets.

The rules already exist, Gensler says

Coinbase also called upon the SEC to write and propose rules for digital assets in a petition back in July 2022. 

Gensler pushed back on that call on Monday, and said that rules have already been published, Gensler said.

“To make it quite direct, this is a field that has been operating largely noncompliant,” Gensler said.