Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC) Photographer: Melissa ... [+]
In light of the swift ascendancy of cryptocurrency and the mass adoption of digital assets by novice investors, the Securities and Exchange Commission (SEC) announced this week that the agency will add around 20 additional positions. This is in response to the cryptocurrency market, which in the last few years has skyrocketed to more than a $2 trillion market valuation.
These important roles will be based within the division responsible for protecting investors who are buying, selling and trading digital assets in crypto markets. The new hires will also be tasked with investigating cyber-related threats, ensuring adequate cybersecurity controls are in place and that SEC registrants and public companies are transparent in disclosing cybersecurity breaches.
The Crypto Cops
The Crypto Assets and Cyber Unit in the Division of Enforcement will escalate to around 50 dedicated positions from about 30 current white-collar regulatory professionals. The new headcount will aid in the agency’s ability to review, investigate, audit, examine and potentially prosecute securities law violations related to these new crypto products and trading activities.
SEC chair Gary Gensler said about the hirings, "The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them."
Gensler previously talked about his concerns over this new risky asset class. He said about bitcoin and other tokens, “If you want to invest in a digital, scarce, speculative store of value, that’s fine. Good-faith actors have been speculating on the value of gold and silver for thousands of years.”
He then warned, “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West. This asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced and complete information. If we don’t address these issues, I worry a lot of people will be hurt.”
Gensler has a solid résumé for the job. He was a Goldman Sachs partner, served as the chairman of the Commodity Futures Trading Commission in President Barack Obama’s administration, the undersecretary of the Treasury for Domestic Finance, the assistant secretary of the Treasury for Financial Markets, a former professor at MIT and the chief financial officer for Hillary Clinton's presidential campaign.
What Was Trump Doing About Regulating Wall Street And Cryptocurrencies?
President Joe Biden’s choice of Gensler was a departure from former President Donald Trump’s take on regulation. Under Gensler, the U.S. will see a more proactive SEC—after four years of deregulation.
When Trump first took office, he made it clear that his administration would be relatively hands-off toward Wall Street. Red tape and bureaucratic rules were anathemas to Trump. He was of the firm belief that too many laws would serve as obstacles to economic growth. Trump famously said that at least two existing regulations should be ripped up for every newly proposed regulation. He even signed an executive order directing federal agencies to cut “unnecessary regulations that impede economic recovery,” a move Trump said would help the economy recover from the impact of the coronavirus outbreak.
Trump said at the time, “I’m directing agencies to review the hundreds of regulations we’ve already suspended in response to the virus and make these suspensions permanent where possible...to use any and all authority to waive, suspend and eliminate unnecessary regulations that impede economic recovery." He added, "I'm also instructing agencies to use the emergency authorities to speed up regulation cuts or new rules that will create jobs and prosperity and get rid of unnecessary rules and regulations."
The New Sheriff In Town Swings Into Action
Given the light regulation under the prior administration, coupled with the restraints caused by the virus outbreak, there may be a lot of work for the new SEC hires. Despite the challenges, there have been actions taken. Gensler said, "The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets.” He added, “ By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets, while continuing to identify disclosure and control issues with respect to cybersecurity."
The newly enhanced Crypto Assets and Cyber Unit will ensure that investors are protected in the crypto markets. There will be an emphasis on investigating securities law violations related to crypto-asset offerings and exchanges, crypto-asset lending and staking products, decentralized finance platforms, non-fungible tokens (NFTs) and stablecoins.
Why The Sudden Interest In NFTs, Tokens And Digital Assets?
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said about the situation, "Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants." Grewal added, "The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges."
The addition of investigative attorneys, trial counsels and fraud analysts in the SEC’s Washington, D.C. headquarters and regional offices will help the agency catch up with what’s happening in this space.
Compliance, Legal, Audit And Regulatory Professionals Will Be In Demand
The regulators will likely try to find out if there are a lot of issues that were swept under the rug during Trump’s tenure. There are likely to be both precautionary exams and audits—which slowed down during the pandemic— to uncover any prior abusive, violative practices that took place or are currently taking place.
The expansion of SEC staff will have a large ripple effect. It sends a message to the financial community that the days of light regulation are over and there’s a new sheriff in town.
In response to the increase in scrutiny, a substantial number of new jobs in the private sector will most likely be created. Once the regulators start conducting examinations, audits and investigations of crypto exchanges, NFT platforms, fintech startups and related trading platforms, along with traditional banks and brokerage firms, these entities will need a significant headcount to deal with this upcoming wave of regulatory oversight. Professionals, such as compliance officers, attorneys, risk managers, auditors and investigators, will be in high demand. This may soon become a hot, sexy growth sector.
