SEC's Gensler Changes Tactics; Stablecoin Regulations

U.S. Securities and Exchange Commission Chairman Gary Gensler and his predecessor have had a fair bit of luck getting companies in the crypto industry to pay on the dotted line when they are accused of breaking securities laws in a variety of ways. But he’s been losing the battle to see virtually all cryptocurrencies recognized as securities in Congress, where the major pieces of legislation creating a regulatory framework for the industry are going in other directions.

In other words, his ability to get crypto lender BlockFi to cough up $100 million to his agency and a group of state regulators won’t mean much if Congress turns crypto over the Commodity Futures Trading Commission (CFTC).

So he took another tack on Aug. 19, framing the fight in a far more layman-friendly language in an op-ed for The Wall Street Journal, while latching onto the last few months’ wave of crypto lender bankruptcies that have seen hundreds of thousands of investors’ funds frozen, and unlikely to be returned in full.

Comparing the public information disclosures required under the Securities Act of 1933 to the seat belt mandate that came in the wake of the National Traffic and Motor Vehicle Safety Act of 1966, Gensler said, “Despite many innovations in automotive technology … drivers and passengers deserve to be protected.”

He added, “There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.”

Congressman Tears Into OFAC

U.S. Rep. Tom Emmer (R-Minn.) wrote to the Treasury Department’s Office of Foreign Asset Control (OFAC) questioning the sanctions placed on the Tornado Cash crypto mixing site. His letter is critical of the move noting — as have many in the crypto community and the highly respected digital rights organization Electronic Frontier Foundation (EFF) — that sanctioning computer code, which has long been seen as protected speech, and series of cryptocurrency addresses is unprecedented. Until now only persons and legal persons (corporations) have been sanctioned.

“The sanctioning of neutral, open-source, decentralized technology presents a series of new questions, which impact not only our national security but the right to privacy of every American citizen,” he wrote.

Seeking Stability

That same security/not security debate in playing out in the same way in the various bills seeking to regulate payment stablecoins, with the same results.

European stablecoin regulation, meanwhile is a lot closer to finalized under the EU’s Markets in Crypto Assets (MiCA) law. While it, like the U.S. proposals, would require 100% backing by fiat or other liquid assets, protectionism is a much bigger factor. Tokens backed by anything but euros are under severe limitations if their usage exceeds 1 million transactions and 200 million euros in transactions per day.

In the Asia Pacific region, regulations are far more varied, ranging from Japan’s recent requirement that stablecoins be issued by banks to Thailand’s outright ban.

Around the World

The Chinese NFT market, which has been hanging on by a thread since China’s outright ban on cryptocurrencies didn’t quite outlaw them but did ban them from being sold at a profit, frayed a little bit more this week when Tencent halted sales on Huanhe, one of the country’s largest surviving nonfungible token marketplaces.

In other news, the South African Reserve Bank has published guidelines that will allow banks to act as “conduits” between crypto asset service providers (CASPs) and customers. The move was a reaction to banks blanket-banning cryptocurrency companies due to concerns over anti-money-laundering (AML) and sanctions violations. The SARB recommended scrutinizing crypto firms on an individual basis.

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