Congress grills SEC Chair Gensler over crypto oversight and regulatory approach

US Securities and Exchange Commission (SEC) Chair Gary Gensler, along with all five SEC commissioners, faced sharp criticism during a congressional hearing focused on the agency’s approach to cryptocurrency regulation.

Lawmakers from both sides of the aisle voiced concerns over the SEC’s aggressive enforcement actions toward digital assets, questioning its lack of regulatory clarity and calling for a more structured framework.

This hearing comes amid growing frustration in the crypto industry over what many see as a “scorched earth” approach by the SEC.

During the hearing, Gensler, a vocal critic of cryptocurrencies, was joined by commissioners Hester Peirce, Mark Uyeda, Caroline Crenshaw, and Jamie Lizárraga.

Lawmakers criticize SEC for creating policy uncertainty

It marked the first time the SEC addressed crypto oversight before the US House Financial Services Committee since 2019.

Lawmakers criticized the SEC for creating policy uncertainty, with many arguing that Gensler’s hardline stance has stifled innovation in the emerging digital asset sector.

Gensler, who has repeatedly stated that most cryptocurrencies should be classified as securities, faced tough questions about the lack of clear guidelines regarding blockchain-based currencies like Ethereum.

Commissioner Hester Peirce, often a dissenting voice within the SEC, echoed these concerns.

She emphasized that the SEC has failed to provide the crypto industry with regulatory clarity, despite having the tools to do so.

According to Peirce, the use of ambiguous language, such as implying that all crypto tokens are securities, has only added confusion, undermining the agency’s ability to effectively oversee the market.

Representative French Hill voiced support for Peirce’s position, arguing that the SEC has been “frontrunning Congress on crypto regulation” by pushing through broad enforcement actions without a comprehensive framework.

Hill and Peirce stressed the need for Congress to step in with statutory guidelines that could establish clearer regulatory boundaries, particularly given the SEC’s reluctance to engage in rulemaking.

‘Rogue SEC’

The phrase “rogue SEC” was used multiple times throughout the hearing, highlighting lawmakers’ frustration with the commission’s handling of digital assets.

One of the more pointed exchanges came from Representative Tom Emmer, who criticized Gensler for coining the term “crypto asset security” — a term the SEC has since retracted and promised not to use in future legal proceedings.

Emmer’s remarks further underscored the confusion around the SEC’s stance on crypto.

The hearing also brought attention to the ongoing debate over stablecoin regulation.

Ranking member Maxine Waters urged Committee Chair Patrick McHenry to finalize negotiations on stablecoin policies before the end of 2024.

The two have been in discussions for months over regulations for fiat-pegged tokens, with many industry experts believing that such a bill could have far-reaching effects on the global digital economy.

The congressional hearing followed a related committee meeting titled “Dazed and Confused: Breaking Down the SEC’s Politicized Approach to Digital Assets,” during which Gensler faced similar criticisms.

Dan Gallagher, a former SEC commissioner and current Chief Legal Officer at Robinhood, testified that the SEC’s staff had been largely unresponsive when Robinhood sought to register as a digital asset exchange, reflecting the broader concerns about the commission’s handling of crypto oversight.

Ahead of the hearing, Republican lawmakers, led by Committee Chair McHenry, also pressed the SEC and other regulatory bodies, including the Federal Reserve and the Federal Deposit Insurance Corporation, to retract Staff Accounting Bulletin 121 (SAB 121).

The bulletin, while not an official SEC interpretation, has caused controversy due to reports of private meetings between SEC staff and certain companies, leading to accusations of favoritism in the competitive digital asset custody market.

One key point of contention was whether Bank of New York Mellon, the largest custodial bank in the US, had received preferential treatment under SAB 121. Critics argue that the SEC’s lack of transparency around such decisions has contributed to an uneven playing field for crypto firms.

Gensler is expected to continue defending the SEC’s actions in upcoming hearings, although his next scheduled testimony before the Senate Banking Committee has been postponed.

With the future of crypto regulation hanging in the balance, the pressure on Gensler and the SEC to clarify their approach to digital assets is only set to intensify in the months ahead.

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