The Economist: US SEC Chairman Gary Gensler needs a lot of money to achieve his regulatory goals

The Economist published an article saying that U.S. SEC Chairman Gary Gensler hopes to launch a "taming finance" campaign to strengthen supervision of the crypto industry, but a lot of money is needed to achieve this goal.

Gary Gensler taught a blockchain course at MIT and won the MIT Business School’s “Outstanding Teacher” award for the 2018-19 academic year. Now he is the chairman of the SEC, the main U.S. market regulator. Finance has been disrupted by an explosion of innovation, and Gensler must figure out how and to what extent to regulate it.

The article points out that regulatory action has already begun in the crypto space. The U.S. Securities and Exchange Commission recently said that if the large cryptocurrency exchange Coinbase launches a loan product without first registering it as a security, it will be sued.

Cryptocurrency believers might expect Gary Gensler to take a friendlier stance. But since taking the helm of the SEC, Gensler has been at pains to point out that while he is "neutral" on technology, that is anything but when it comes to investor protection and market stability. That means increasing regulation of the $2.2 trillion crypto market, which he told a Senate committee this week is a "Wild West ... rife with fraud, deception and abuse."

He’s also warily watching other new frontiers in finance, from trading apps like Robinhood that use “digital engagement practices” to encourage retail investors to trade more frequently to special purpose acquisition companies (SPACs) that push the boundaries of what’s allowed under securities law.

For all the focus on the cutting edge of finance, the SEC could end up having just as much influence on more established markets. Gensler believes stock trading needs an overhaul; too much money flows to “dark” over-the-counter venues, where small investors can be more easily defrauded. They can also be tainted by potential conflicts of interest, such as the “order flow payments” that brokers receive for passing trades to specific market makers.

Gensler, then, has a lot on its plate; policy reviews in at least 50 areas are underway. That’s a big change from the days of President Trump, when the commission seemed happy to drag its feet on implementing post-financial crisis reforms.

After 18 years at Goldman, Gensler worked at the Treasury Department and helped write Sarbanes-Oxley after the collapse of energy company Enron in 2001. As head of the Commodity Futures Trading Commission, which regulates derivatives, he saw the huge over-the-counter swaps industry attacked, forcing it onto more tightly regulated platforms.

Under his leadership, the SEC has even used social media to good effect. When Coinbase’s boss said he was shocked that a loan product could be classified as a security, the commission tweeted a 30-second guide to bond operations.

The article concludes that Gensler has big ambitions, and his problem may be finding big money to realize them. He may also have to compete with other regulators. The CFTC wants a piece of the digital currency pie, and then there are politicians. Regulation-friendly Democrats have the upper hand in Congress, and some are uneasy about the dramatic expansion of the SEC's power. Gensler also needs more money. His budget of $2 billion is less than JPMorgan Chase's annual marketing spending.