SEC explores segregating businesses at crypto exchanges

The US Securities and Exchange Commission is looking for ways to regulate cryptocurrency trading platforms that could include hiving off some of their operations, says Gary Gensler, chair of the regulator.

In a speech on Monday, Gensler said crypto trading platforms that handle more than $100bn in transactions a day differ from traditional exchanges because they do more things — such as taking custody of customer assets and trading in listed tokens as “market makers”.

Citing statistics that $14bn in customer crypto assets were stolen last year, Gensler said he had asked the SEC to examine whether “it would be appropriate to segregate out custody” functions at the platforms.

He said he had asked staff to consider similar steps for the market-making activities of crypto exchanges because of issues raised when they trade as “principals against their customers on their platforms”.

Directing staff to explore these issues could be a first step by the commission in officially setting a rule.

Gensler reiterated his belief that most cryptocurrencies — and the platforms where they are traded — should be regulated by the SEC because the tokens qualify as securities under US law.

“Today, many entrepreneurs are raising money from the public by selling crypto tokens, with the expectation that the managers will build an ecosystem where the token is useful,” Gensler said.

“These aren’t laundromat tokens,” he added. “Somebody is building an ecosystem to make it useful, which will draw more users to the project. Thus, it’s important that we work to get crypto tokens that are securities to be registered with the SEC.”

Building on his previous calls for crypto platforms to register with the SEC, Gensler said he had asked staff to work on “getting the platforms themselves registered and regulated much like exchanges”.

He added that because a “few” cryptocurrencies were commodities under US law — functioning “like digital gold” — the SEC was also looking to work with the Commodity Futures Trading Commission, a derivatives regulator he once headed, on “how we might jointly address such platforms”.

“There’s no reason to treat the crypto market differently just because different technology is used. We should be technology-neutral, but not policy-neutral,” he told a conference at the University of Pennsylvania.

“These crypto platforms play roles similar to those of traditional regulated exchanges,” he added. “Investors should be protected in the same way. The US has the greatest capital markets because investors have faith in them.”