U.S. SEC Chairman: Many cryptocurrencies fall under the jurisdiction of securities laws and hopes to work with Congress to regulate crypto exchanges

“There are a lot of crypto tokens that do fall under securities laws,” U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler told Democratic Congressman Mike Quigley during an oversight hearing of the House Appropriations Committee on Wednesday.

Gensler also said the SEC has been consistent in its communications with market participants that those who use initial coin offerings to raise funds or engage in securities transactions must comply with federal securities laws. Asset managers that invest in unregistered securities may also be subject to securities laws.

During the hearing, Congressman Mike Quigley (IL) asked Gensler about the possibility of a new regulatory category for cryptocurrencies.

Gensler said the breadth of the field makes it difficult to provide adequate consumer protection, noting that despite thousands of token projects, the SEC has only filed 75 cases. He believes the best place to enforce consumer protection is on trading venues.

Tokens currently on the market that are securities may be offered, sold, and traded in violation of federal securities laws. In addition, no exchanges trading crypto tokens are registered as exchanges with the SEC.

Overall, this significantly reduces investor protection compared to traditional securities markets and correspondingly increases opportunities for fraud and manipulation. The SEC has prioritized cases involving token fraud or significant harm to investors.

Gensler said it hopes to work with other regulators and Congress to fill gaps in investor protection in the crypto market.

Without “proven rules,” Gensler worries that market participants will preempt traders’ orders. He said he hopes to bring similar protections put in place by venues like the New York Stock Exchange (NYSE) and Nasdaq to crypto platforms.

But Gensler said more money may be needed to develop and enforce those rules. Currently, the agency spends about 16% of its budget on new technology, and the companies it regulates have considerable resources. Gensler said those resources have also shrunk by about 4%. Cryptocurrencies pose new risks that require more resources, he said.

This isn’t the first time he has singled out cryptocurrency exchanges as the biggest consumer protection gap. During a May 6 hearing of the House Financial Services Committee, Gensler said that the lack of a dedicated market regulator for crypto exchanges means there aren’t enough protections against fraud or manipulation.