In a recent appearance before the House Financial Services Committee, Gary Gensler, Chair of the United States (US) Securities and Exchange Commission (SEC), upheld his assertive stance against what he referred to as crypto “hucksters.”
During this congressional testimony, he chose not to address some of the industry’s pressing inquiries, instead directing attention to what he views as a concerning trend of recklessness within digital asset companies regarding customer assets.
Central to Gary’s testimony was his continued critique of the manner in which crypto enterprises handle customer funds.
He emphasised that the practice of commingling assets, a common industry practice, has yielded undesirable outcomes.
His words underscored his belief that this approach has been detrimental to the safeguarding of customer assets, leading to a situation that is far from ideal.
Additionally, he touched on the SEC’s ongoing deliberations regarding a recent judge’s ruling on the matter of spot BTC exchange-traded funds (ETFs).
At present, his agency remains in the process of determining its course of action in response to this development, reflecting the intricate regulatory landscape that continues to shape the crypto industry.
He expressed in his testimony:
“It’s still an active consideration of the commission. We have great respect for the courts.”
In August, the DC Circuit Court of Appeals issued a directive to the SEC, urging a re-evaluation of its stance on BTC ETF applications.
Circuit Judge Neomi Rao criticised the SEC’s rejection of the Grayscale Investments case as “arbitrary and capricious.”
During Gary’s recent testimony, the path forward for the agency regarding this matter remained undisclosed.
While the hearing encompassed various topics, it extended beyond the realm of cryptocurrencies.
Discussions ranged from the impending federal government shutdown to the SEC’s allocation of attention to climate and other matters.
Similar to previous hearings, the session highlighted a distinct partisan divide, with influential Democrats commending Gary while Republicans raised concerns about perceived adverse impacts on consumers and small businesses, asserting that he was creating confusion and causing lasting harm to the industry.
Chairman Rep Patrick McHenry (R-NC) took the opportunity to emphasise the SEC’s “losing streak with the courts” and criticised what he viewed as a “crusade against the digital assets ecosystem.”
Patrick contended that this approach was generating confusion and lasting harm within the industry.
During questioning, he sought confirmation from Gary that BTC is not considered a security, an assertion that Gary affirmed.
Meanwhile, the crypto industry’s dealings with the SEC may soon encounter delays, as Gary revealed that the agency is bracing for a potential government shutdown in the coming week.
In such an event, he noted that the agency’s staffing levels would plummet by more than 90%, leaving only senior leadership functioning.
This would likely result in a significant slowdown in the day-to-day reviews and approvals of SEC filings.
Of the agency’s 5,000-strong workforce, the hundreds on duty during a closure would not receive compensation, a situation that he acknowledged as challenging for those involved.
Regarding another high-profile legal matter, the SEC’s case against Ripple, he declined to comment.
A judge in that case had ruled that Ripple had not violated federal securities law in its sale of XRP to retail investors, a matter that remains pending before the court.
Rep Stephen Lynch (D-Mass) raised concerns about the SEC’s allegations against Binance, likening them to the behaviour of FTX before its collapse.
He argued that granting the industry regulatory leeway might paradoxically render a firm legally blameless in the event of another collapse.
In response, Gary highlighted the need for congressional action to address the issue of commingled assets in the crypto sphere, suggesting that any such legislation would need to disentangle these conflicts.