The Securities and Exchange Commission has made its strongest move yet to bring decentralized finance (DeFi) under the auspices of its regulatory authority, and now Chairman Gary Gensler is on the spot with a congressional oversight committee.
The agency’s latest move was a 3-2 vote to expand its definition of operations that would fall under security regulation, which would include the DeFi technology underlying cryptocurrency. The expanded rules would prompt a decision by crypto operators: fundamentally remake their approach, including antithetical increased centralization, or move along.
“We see this new technology, and we’re not willing to make any adjustments to accommodate it. If you don’t look exactly like incumbent firms, then we’re just going to be fine with killing you off or driving you offshore or forcing you to turn yourself into a centralized entity.”
Contrast With the UK
The SEC’s view on DeFi, cryptocurrency, and blockchain technologies is especially stark when it’s contrasted with developments overseas. In a speech at the Innovate Global Summit in London, Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, made a case for stronger and more enhanced tokenization as the country’s central bank embraces new forms of money and payments.
“These developments have been much hyped, of course, and one could not say it was a certain bet that they will be as transformative as some have claimed,” Cunliffe said. “But some have already begun to find their way into conventional finance, and there is a great deal of experimentation and development going on, both in the crypto world and in conventional finance.
“They offer the prospect of what is loosely called the ‘tokenization’ of financial and other assets—including the ‘money’ that is used to settle—and thereby a more extensive, faster, and more secure programming/automation of transactions. And they offer new ways to record the ownership and the transferring of ownership, of assets—again, including the transfer of money—which we generally call ‘payments.’”
Put more directly: This is happening, and it behooves governments and central banks to get on board.
Gensler vs. Congress
Gensler’s appearance before the House Financial Services Committee on Tuesday was combustible. The SEC chair, who has been criticized on Wall Street for what investors see as excessive rulemaking, told lawmakers that his agency is “the cop on the beat watching out for your constituents.”
Rep. Patrick McHenry (R-N.C.) criticized the agency’s enforcement actions against crypto firms, saying it’s out in front of Congress in claiming digital assets are securities. That declaration has resulted in a fight with the Commodity Futures Trading Commission (CTFC) over who has oversight responsibilities.
“You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them,” McHenry told Gensler. “It’s nonsensical.”
Rep. Tom Emmer (R-Minn.), a noted crypto ally, challenged Gensler: “Does it concern you that your approach to the digital asset industry is actually driving this industry out of the United States?”
Gensler’s reply: “I’m trying to drive it to compliance, and if they’re not complying with the laws, then they shouldn’t be offering their products to U.S. investors.”