SEC Chair Gary Gensler the agency could provide more investor protection for crypto assets with help ... [+]
Securities and Exchange Commission Chair Gary Gensler told the House Financial Services Committee today the SEC can give crypto assets greater investor protection and more robust oversight with the help of the Commodity Futures Trading Commission and other financial regulators.
He told the panel his agency is working with the Federal Reserve, Department of Treasury, the CFTC, the Office of the Comptroller of the Currency, and other members of the President’s Working Group on Financial Markets to make that happen including on issues of anti-money laundering and tax compliance.
“I am technology-neutral. I think that this technology has been and can continue to be a catalyst for change, but technologies don’t last long if they stay outside of the regulatory framework,” the SEC Chair said.
Investor protection is going to be an important part of whether crypto survives and meets its mission, he added.
Gensler warned stablecoins could be a systemic risk, noting they have grown 10 times in the last year,
Calling them like poker chips at a casino, he said stablecoins were developed over the last eight years to avert anti-money laundering laws around the globe and tax compliance. He added the Financial Stability Oversight Council is looking at them in terms of financial stability, illicit activity, and investor protection.
Gensler was chastised by the top Republican on the Committee, Patrick McHenry of North Carolina for causing significant confusion for market participants and stakeholders in Congress on crypto and run roughshod over investors.
“Investors and other market participants expect the SEC to act based on an impartial assessment of the law and the facts as determined by the Commission, not the Chair’s impromptu public pontifications…I have strong concerns,” McHenry told Gensler in a letter released the morning of the hearing.
During the hearing, Gensler said the Commission will consider a proposal to require companies to give mandatory climate risk disclosures in the next several months which would promote consistency and compatibility for investors and companies and give decision-making useful information.
He pointed out hundreds of large companies are making voluntary disclosures and that the mandate would be useful for a retail investor buying 50 shares of stock and institutional investors.
Gensler said he has asked the SEC staff to develop a proposal that would phase in implementation for large and small companies and different types of businesses.
Andy Barr (R-KY) told Gensler he was worried a mandate would have subjective requirements and could be hijacked by trial lawyers for frivolous lawsuits.
He said many ESG funds have fees 40% higher than non-ESG funds.
Addressing concerns from House Financial Services Chair Maxine Waters (D-CA) about what would happen if the federal government defaulted on its debt, Gensler said if Congress doesn’t agree to pay the debt within a couple of days of October 18, there will be fraying in the marketplace because Treasuries are the basis on what the markets stands.
He asserted default would lead to significant volatility and a breakage in the system.
The session saw a spirited give and take on payment for order flow.
The SEC Chair repeated his concerns that it may present conflicts of interest and has asked staff for recommendations as to how the Commission can ensure a more level playing field, enhance competition, and improve resiliency. He said the practice has been banned in the United Kingdom and Canada.
Acknowledging proponents of payment for order flow can improve the price investors get on trades, Rep. Jim Himes (D-CT) said there is an improvement of price but at a very lousy price.
He said it needs to be looked into why in trades why institutional investors always get better price in trades than retail investors.
Speaking to the use of artificial intelligence and machine learning at the SEC, Gensler said it is very limited:
“We’re really behind the high frequency trading shops. We could use it in market surveillance and throughout exams. What it is good for is finding patterns.”
