In his investor advisory committee remarks on Dec. 2 SEC Chair Gary Gensler mentioned the founding of the SEC and its purpose, saying, “The basic bargain is this: Investors get to decide what risks they wish to take. Companies that are raising money from the public have an obligation to share full and fair information with investors on a regular basis. Investors also are protected against fraud.”
While the function of the SEC to protect the investor has remained the same, the mechanisms of investments and the investments themselves have changed. That means Gensler is focusing on modern risks for the today’s investors. Cryptocurrency is among those new challenges.
“Today, investors increasingly want to understand the climate and cybersecurity risks, as well as the human capital, of the companies whose stock they own or might buy,” he said. “Large and small investors, representing literally tens of trillions of dollars, are looking for consistent, comparable, and decision-useful disclosures in these areas to determine whether to invest, sell, or make a voting decision one way or another.”
Crypto markets, and protecting senior investors are priorities, according to Gensler’s remarks before the Investor Advisory Committee.
“I can’t stress how important it is to continue to protect older investors and those who are trusting their retirement savings to our markets. We at the SEC take that obligation seriously, and it gets to the heart of our work,” he said.
Gensler had plenty to add about crypto, with several primary points:
”First, Satoshi Nakamoto’s “Bitcoin Whitepaper”[1] and the crypto markets that followed have been catalysts for change. This innovation challenged some early financial technologies: money and ledgers. It also has challenged incumbent business models of trading, lending, and collectibles, as well as the official sector.
“Second, with a $2.6 trillion aggregate market capitalization and more than 100 tokens purportedly with market capitalizations each more than $1 billion,[2] this is an asset class that belongs inside public policy frameworks of looking after investors, guarding against illicit activity, and protecting our financial stability.
“Third, unfortunately, this asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about crypto assets and crypto projects. In many cases, investors aren’t able to get rigorous, balanced, and complete information on tokens or trading and lending platforms.
“Fourth, right now, we just don’t have enough investor protection in crypto. The American public is buying, selling, and lending crypto on trading, lending, and decentralized finance (DeFi) platforms, where there are significant gaps in investor protection. …
“Fifth, many of these tokens are offered and sold as securities. There’s actually a lot of clarity on that front. In the 1930s, Congress established the definition of a security, which included about 20 items, like stock, bonds, and notes.”
In his final point, Gensler implied that the SEC will be looking to protect consumers ahead of any major fallouts from a crypto-related issue.
“Sixth, it’s best not to wait for a big spill on aisle three — the crypto aisle, with all its tokens, trading and lending going on — to clean up the investor protection issues,” he said.
All that’s to say that RIAs can expect more regulations and oversight from the SEC in these areas. Seniors and their investments are a priority, according to Gensler’s remarks, as are regulations that help guide crypto investments.
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