SEC Chair Gary Gensler has asked the staff at his agency to look into four new areas for potential new cryptocurrency regulation.
Why it matters: The White House instructed several agencies in March to develop more recommendations for governing the new industry, signaling that both blockchain’s potential and its dangers are being taken seriously at the highest levels.
Driving the news: “There’s no reason to treat the crypto market differently just because different technology is used. We should be technology-neutral,” Gensler said in his prepared remarks Monday at the Penn Law Capital Markets Association Annual Conference at the University of Pennsylvnia.
Between the lines: The chair delineated four issues he would like to see his staff address.
- Protecting retail traders in crypto in much the same way they are protected in equities. As an example, the New York Stock Exchange is regulated in ways that a Coinbase or a Kraken are not, which provides retail traders there more protections.
- Teaming up with the Commodities Futures Trading Commission. Until crypto, commodities and securities didn’t trade on the same venue, the agency’s Scott Schneider explained to Axios. Because they trade side-by-side on crypto platforms in the form of tokens, though, the two regulators need to explore ways to work together.
- Firewall custody of assets. Crypto’s platforms take custody of assets (actual cryptocurrency), while regulated equity exchanges do not. Crypto often gets stolen from such exchanges, putting investors at risk (with Canada’s QuadrigaCX serving as one cinematic example). Gensler wants to explore rules around separating exchange and custody functions.
- Separate market making out. Regulated exchanges serve as a meeting place for buyers and sellers, but some crypto exchanges also do buying and selling in order to keep liquidity flowing. Gensler asked staff to look at whether separating these functions would be appropriate in crypto as well.
What they’re saying: “New technologies come along all the time; the question is how we adjust to that new technology,” Gensler said. “Crypto may offer new ways for entrepreneurs to raise capital and for investors to trade, but we still need investor and market protection.”