Securities and Exchange Commission (SEC) chair Gary Gensler thinks crypto is slipping through certain gaps in the current regulatory system, and exchange regulation is the way to address them.
During a Wednesday hearing before the Financial Services and General Government subcommittee of the House of Representatives, Congressman Mike Quigley (IL) questioned Gensler on the possibility of a new regulatory category for cryptocurrency.
Gensler said the breadth of the space has made it challenging to create sufficient consumer protections, noting that despite thousands of token projects, the SEC has only brought 75 actions. The best point to put consumer protections in place, according to Gensler, is at the trading venues.
"I would think if we could work with Congress to try to bring investor protection where these — sometimes commodities, sometimes securities — are trading on the platforms," said Gensler.
Without "rules of the road," Gensler said he's worried market participants will front-run traders' orders. He said he hopes to bring similar protections placed on venues like the New York Stock Exchange (NYSE) and Nasdaq to crypto platforms.
But in order to create and enforce those rules of the road, Gensler said more funding might be in order. Right now, the agency spends about 16% of its budget on new technology, while the firms it regulates have considerably greater resources. Those resources have also shrunk about 4%, according to Gensler. He said crypto, among other advances, poses new risks that require greater resources.
This isn't the first time Gensler has pointed to crypto exchanges as the biggest consumer protection gap. In a May 6 hearing before the House Financial Services Committee, Gensler said the lack of a dedicated market regulator for crypto exchanges meant there wasn't enough protection against fraud or manipulation.