The Securities and Exchange Commission (SEC) needs experienced people to oversee so-called crypto assets like Bitcoin. The Government Accountability Office (GAO) found that the SEC needs to update its workforce planning strategy to ensure it has the necessary cryptocurrency expertise. To learn more , Federal Drive spoke with Tom Temin and GAO Director of Financial Markets and Community Investments Michael Clements.
Tom Temin And let's start with what the SEC's role is when it comes to cryptocurrencies that aren't actually scams, I think that's the question.
Michael Clements Because cryptocurrencies are securities, they are subject to US securities laws, the enforcement of which is the responsibility of the SEC. The SEC notes that many of these crypto assets are securities and therefore fall within its scope.
Tom Temin And they did? I think they have done so to this day. They have experience in cryptocurrency. Did you find it.
Is Michael Clements right? We found that about 120 of the SEC's 4,900 employees are cryptocurrency experts or spend most of their time working on the topic.
Tom Temin Does the SEC have a workforce planning strategy?
Michael Clements In 2016, we recommended that the Securities and Exchange Commission (SEC) develop a workforce plan, primarily in response to a skills gap analysis in 2019. The Securities and Exchange Commission (SEC) has taken steps to address this issue, including . skills surveys to understand what skills your employees have. and we also do what's called a human resources review to see what skills we need to improve. We discovered that the SEC has not updated its personnel plans. Its latest workforce plan, Ram 2019, is valid until 2022. Therefore, in this latest report we recommend updating the workforce plan.
Tom Temin Are there any signs that people working in the cryptocurrency industry today have made a mistake or missed something? I mean, the SEC forgot about the Madoff case years ago. This wasn't a cryptocurrency situation, but it was reported to the agency and nothing happened. And so on and so on. The rest is history. And last year we had a disaster at FTX. An impressive thing. Is the SEC involved in this?
The Michael Clements Commission has undertaken significant communications with industry to ensure they understand their obligations. The Commission has issued a series of guidance documents for industry to inform them about who needs to register and under what conditions, and to ensure that the Commission takes enforcement action. The commission has taken more than 130 enforcement actions against companies that failed to register under securities laws.
Tom Temin Because these companies are essentially selling an investment vehicle for something that doesn't actually exist. It's a hash hidden in some software somewhere, you know, somewhere on the Internet, of what you're basically investing in. But do they have an investment mechanism like the stock market?
Michael Clements Right. If a crypto asset meets the definition of value, it must be listed on the exchange that trades the crypto asset data that we have registered. In many cases, these crypto assets are included in so-called investment contracts, which are a type of collateral. Again in 2019, the SEC provided a framework that allows industry players to analyze their crypto assets and decide whether they are securities or not.
Tom Temin In short: Do you have a vision for the industry itself? I mean, it's like electric cars, where after a year of lots of people coming, most fail and disappear, and there's only a couple left, maybe a Tesla, maybe 1 or 2 more. Is that so? in cryptocurrencies? Or you know, Bitcoin will continue to exist and the rest will disappear.
Michael Clements: I don't know if I want to predict who will be here in five years or so. Bitcoin is at its peak right now and in the last few days, in fact, the board has approved several exchange-traded Bitcoin spot funds for people who may have exposure to Bitcoin but don't actually want to own it. .
Tom Temin Of course. We spoke with Michael Clements, director of financial markets and public investments at the Government Accountability Office. So what do you recommend to the SEC?
Michael Clements We had three recommendations in the December report. First, as I mentioned, update your human resources plan, in line with your strategic plan, from FY22 to FY26. First, you need to formalize your control policies and procedures to ensure they actually meet your goals. And second, develop goals and performance measures that have not yet been achieved. Again, to make sure he achieves what he needs to achieve.
Tom Temin Yes These are the basics you need in any program launched by an agency.
Michael Clements: Yes, FINHUB is a relatively new organization. 2018 started in the company's finance department. In 2020 it became an autonomous and independent office. Some of these basic elements are still needed: types of policies and procedures and performance objectives.
Tom Temin And by the way, which side of Congress is the SEC usually interested in and what does it do? And what about Bitcoin? Is there any correspondence between the agency that oversees the SEC and the cryptocurrencies themselves?
Michael Clements That's right. Therefore, in Congress there will be two major committees in the House Financial Services Committee. We actually did this work for the chairman of that committee, McHenry, and also for the Senate Banking Committee, who said that in some cases these cryptocurrencies and cryptoassets could be considered commodities. In fact, Bitcoin is generally considered a commodity, a case that the House and Senate Agriculture Committees are also considering.
Tom Temin Interesting. Therefore, it is a financial investment instrument, a security and a commodity at the same time.
Michael Clements on the Bitcoin case. The general idea is that, as crypto assets are commodities, there are other currencies that are considered securities.
Tom Temin I think we take it for granted, but you have to ask directly. There is specific technological information you need to know to observe what is happening in Bitcoin, as there is no physical product. I guess in theory you could get a truckload of pork belly. No one has ever done it, but it's possible. Maybe it's a processing plant. But no one physically owns anything. It does not exist in time and space.
Michael Clements We believe that given the complexity of technology, it is important for employees to gain this experience. In fact, this was one of the motivations for the establishment of the FINHUB office by the SEC.
Tom Temin And does the SEC generally agree with the recommendations that you made, the three recommendations?
Michael Clements Yes So the SEC has committed to taking action to address all three of those issues.
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