US SEC Chair Worries 'Commingling' by Crypto Exchanges Could Endanger Clients’ Assets

Gary Gensler. Source: a video screenshot, Bloomberg Markets and Finance / YouTube

 

Cryptoasset exchanges are not placing walls between respective parts of their activities, such as trading, custody, and marketing services, which could lead to the “commingling” of their activities, and put their clients’ interests in jeopardy, according to Garry Gensler, Chair of the U.S. Securities and Exchange Commission (SEC). The official also indicated that his agency is looking into the ties between the leading stablecoins and major exchanges.

“Crypto’s got a lot of those challenges-- of platforms trading ahead of their customers,” the head of the regulator told Bloomberg, claiming that,

“In fact, they’re trading against their customers often because they’re market-marking against their customers.” 

The latest statement comes shortly after the SEC announced it created some 20 additional positions, for a total of 50, within the unit responsible for protecting investors in crypto markets and from cyber-related threats. Called the Crypto Assets and Cyber Unit, the entity was formerly known as the Cyber Unit. Gensler said the expansion would allow the agency to “be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity”.

The official has established himself as a vocal critic of many segments of the crypto industry. He argues that most digital assets fall under the SEC’s regulatory purview and that crypto trading platforms should register with the agency. With this in mind, the regulator is determined to bolster its enforcement efforts, according to the official.

At the same time, the SEC is closely observing the stablecoin market, as Gensler finds that it is no accident that the three leading stablecoins, Tether, USD Coin (USDC), and Binance USD, have ties to major exchanges.

“I don’t think that’s a coincidence,” the agency’s head said.

Making a reference to anti-money laundering (AML) and know-your-customer (KYC) measures, Gensler also said that each “one of the three big ones were founded by the trading platforms to facilitate trading on those platforms and potentially avoid AML and KYC”.

Gensler’s approach to stablecoins seems to be shared by US Treasury Secretary Janet Yellen. Speaking at a Senate Banking Committee hearing on Tuesday, she said that stablecoins represented “risks to financial stability” and as such, they should be subject to new regulations.

“We really need a consistent federal framework,” Yellen told senators, as quoted by The Wall Street Journal.

Last month, Gensler attended a conference hosted by the University of Pennsylvania Carey Law School where he spoke on the future of digital assets in a keynote presentation. For some crypto industry observers, the regulator’s increased focus on such assets was in itself bad news.

“Something tells me that as soon as the SEC gets involved, we can kiss the Future of Digital Assets goodbye,” tweeted a user.

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