SEC Chair Gary Gensler recently testified before the Subcommittee on Financial Services and General Government regarding the SEC’s budget request for FY2024. This testimony was Gensler’s first official statement since the SEC’s recent enforcement actions against crypto exchanges, which have increased tensions around the SEC’s regulatory guidance over the past few years.
During his testimony, Gensler emphasized the importance of the SEC in protecting both investors and issuers. He emphasized the rapid growth and change occurring in the markets, including the volatility and unpredictability of the crypto markets.
As evidence of the SEC’s current workload, Gensler shared that the agency had received over 35,000 tips, complaints, and referrals related to crypto in FY 2022 alone. He also pointed out that the Division of Enforcement brought over 750 enforcement actions during that same time period, with penalties and disgorgement totaling $6.4 billion.
Furthermore, the Division of Examinations conducted over 3,000 examinations in FY 2022, including in the crypto space, and has requested additional funding to address risks in that market. Meanwhile, the Division of Corporation Finance, which oversees the disclosures of public companies, has also requested additional funding to serve investors as the markets continue to grow and evolve. The Division of Trading and Markets, responsible for overseeing more than 3,500 broker-dealers, is likewise responding to an increasing number of public inquiries related to crypto.
In light of these challenges and the rapidly changing market landscape, Gensler requested $2.436 billion for the SEC, which was proposed to be financed through transaction fees to remain deficit-neutral. He emphasized that the SEC must continue to grow and expand in response to the expansion and increased complexity of capital markets. And, with the crypto market evolving, it is likely that the SEC will play an increasingly important role in regulating this asset class.
In a move indicating increased interest in digital assets, Gensler testified in front of the House Financial Services Committee on April 18th, in the first oversight hearing with the SEC. HFSC chairman Patrick McHenry signaled that the committee would be asking questions about the SEC’s approach to rule-making and digital assets. The hearing also demonstrated the growing concern among policymakers regarding the need for increased regulatory oversight of digital assets.
This is all occurring against the backdrop of continued growing interest in cryptocurrencies and the evolving regulatory landscape surrounding digital assets. So-called “wild west” crypto markets, which have little or no regulatory structure, are particularly vulnerable to fraud, market manipulation, and other negative practices.
Many investors and companies are eager to participate in the potential benefits of crypto, but lack clarity around its legitimacy and regulation. Currently, the SEC and other regulatory bodies are engaged in a delicate balancing act, working to protect investors while simultaneously promoting innovation through clearer regulatory guidance.
The SEC’s budget request, as well as Gensler’s recent testimony, demonstrate the growing importance of regulatory bodies in overseeing the digital asset market. As with any new and rapidly evolving industry or technology, digital assets are likely to go through a period of uncertainty and volatility before settling into a more established regulatory framework.
In the interim, it is clear that increased investment in regulatory oversight and enforcement will continue to be a top priority for both regulatory bodies and market participants. Only through greater transparency and clearer regulatory guidance can digital assets gain broader acceptance and legitimacy, while providing true value to investors and issuers alike.