Under the auspices of its Chairman, Securities & Exchange Commission (SEC), Gary Gensler, SEC ensured its vigilant oversight of crypto firms.
Speaking on behalf of the SEC, Gensler warned that for ensuring compliance by crypto firms, he will take all steps and actions necessary.
US Regulatory Authorities for Crypto Firms
Under the laws of the US, digital assets are divided into two categories namely “cryptocurrencies” and “securities”. So if a crypto firm is involved in the business of “securities” then they shall be regulated by SEC.
However, crypto firms in the US, are engaged in the trading of cryptocurrencies, commodities, stocks, forex, securities, etc. Hence, they are subject to further regulatory oversight by Commodity Futures Trading Commission (CFTC).
Basically, crypto firms operating in the US, whether centralized or decentralized, are subject to regulatory oversight by SEC and CFTC.
SEC’s Warning To Crypto Firms
SEC’s Chairman was being criticized by a large number of US lawmakers for not being able to set up crypto regulations.
Even the crypto industry concerned people also criticized SEC’s top official for his half-hearted attempt towards need regulation.
Because of the criticism, he was called upon to testify before a high-powered Financial Committee of the US Congress. He was to explain why he has planned to proceed in the matter of crypto regulation.
It was hence after his testimony that Gensler is going after crypto firms that are not ensuring full compliance with SEC’s guidelines.
Since then, under his directives, SEC has taken enforcement actions against recently defaulted crypto firms. Actions included leveling of charges against former top-most management of FTX and Alameda Research.
Security Law Compliance Is Must
Gensler emphasized that SEC will do whatever it takes to break down non-compliant crypto firms into compliance.
Chairman SEC accused managements of these firms of defrauding millions of equity investors within and outside the US.
In a tweet message, Gensler told that risks shall always be there until and unless crypto firms testify compliance with security laws.
He remarked that SEC will force crypto firms into strict adherence and compliance by all legal means necessary.
Crypto Firm Crackdown Expected Soon
Gensler also warned about cracking down on non-compliant crypto firms which he revealed in an interview with Bloomberg on 22nd December 2022.
He said that SEC has identified a number of non-compliant crypto firms and shall soon be coming after them.
Gensler emphasized that the “ground beneath crypto firms is shrinking fast” and hence advised them to get their due registration done immediately.
He also warned casinos and said that SEC knows that being “intermediaries”, they also need to obtain their registrations from SEC.
SEC’s Examination of Crypto Firms’ Proof-of-Reserves
Recently, US crypto firms were voluntarily showing their Proof-of-Reserves (PORs) for convincing customers that their withdrawals would not be suspended.
Binance also revealed its PORs voluntarily showing that it has enough funds available for complying with customers’ withdrawal requests at all times.
SEC Chairman also took note of this voluntary disclosure by the crypto firms. He remarked that neither POR is an accountant standard to prove a firm’s financial strength nor does it safeguards investors.
He advised crypto firms that instead of POR disclosures, crypto firms must come forward and go through the registration process. He lectured that registration with the regulator would ultimately boost investors’ confidence and trust.
It is important to mention here that even Binance’s voluntary POR did not work in the exchange’s favor. It was heavily criticized by entities from the cryptocurrency industry.
Even the CEO of Kraken pointed out the collateralization that Binance claimed it had for Bitcoin which was at 101%. It was argued that it could not be 101% but somewhere around 97%.
The Kraken CEO pointed out that Binance also lends Bitcoin as part of its lending service. This is the reason why its collateralization would not be that much.
Later, the company that carried out the audit for Binance’s POR deleted the audit results from its website.
This has raised even more concerns among the regulators, giving them a reason to become more aggressive.