The U.S. House Financial Services Committee will hear how the Securities and Exchange Commission is changing its oversight and rules to keep pace with technological advances, including cryptocurrencies and artificial intelligence.
SEC Chairman Gary Gensler will explain how the US securities regulator is updating its rules to keep pace with "the technologies and business models of the 2020s." As usual, Gensler's opening statement was released ahead of a Sept. 27 hearing at which the SEC unveiled broader oversight of securities and exchanges in the United States.
The SEC's approach to the cryptocurrency industry is of particular interest as it has been criticized for a "coercive regulation" approach that stifles innovation and adoption in states. - Lonely.
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Gensler will be directly involved in two emerging technology areas, namely predictive data analytics and cryptocurrencies. The SEC chairman is expected to emphasize that investors and issuers participating in “cryptocurrency securities markets” deserve the protections provided by securities laws.
Speaking about the implementation of the Securities Act of 1933, Gensler said that the US Congress decided to include a list of more than 30 elements in the definition of a security, including the term “investment contract.”
“As I said earlier, the vast majority of cryptocurrency tokens will likely pass the non-token investment agreement review first.”
Gensler will tell the House Financial Services Committee that the SEC's view that most cryptocurrencies are subject to securities laws also requires intermediaries such as exchanges, broker-dealers and dealers to comply with the laws.
The SEC chairman notes that the entire industry is guilty of “widespread noncompliance with securities laws,” which has led to a number of enforcement actions. Gensler added that the SEC is looking to address the cryptocurrency "security markets" sector through rulemaking.
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This included a reopening statement issued in April 2023 confirming that existing SEC rules apply to cryptocurrency trading platforms, including decentralized finance (DeFi) protocols. The publication provides additional guidance for systems covered by the proposed new definition of exchange.
“While the current investment advisor custodial rule applies to crypto funds and securities, our proposal to update it would cover all cryptocurrencies and improve protection through qualified custodians.”
The SEC chairman said predictive data analytics and artificial intelligence have ushered in an “era of transformation” and improved economic efficiency. The potential of this technology is expected to improve financial inclusion and user experience, but it also poses operational risks.
“For example, if advisors or brokers place their own interests above those of investors, this also increases the risk of conflict.”
Gensler's speech also mentioned the SEC's July 2023 proposal to require companies to consider conflicts of interest arising from using predictive data analytics to communicate with investors. These potential conflicts must be eliminated or neutralized by the companies involved.
It remains to be seen whether Gensler will comment on the ongoing litigation with Coinbase and Binance.US, two US cryptocurrency exchanges that the regulator has accused of numerous violations of securities laws.
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