Legal and IP News

SEC’s Gensler calls out utility tokens in European crypto-asset briefing

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Yesterday in a speech to the European Parliament Committee, Chair of the U.S Securities and Exchange Commission Gary Gensler addressed the burgeoning field of crypto assets. In Gensler’s view, “this innovation has been and could continue to be a catalyst for change in the fields of finance and money.”

Concerns over crypto-assets

Despite recognition of the potential, Gensler expressed reticence over the current legislation on crypto trading and lending.

“For those who want to encourage innovations in crypto, I’d like to note that financial innovations throughout history don’t long thrive outside of public policy frameworks,” he said.

Gensler is particularly concerned about the current lack of investor protections, worrying that people will get hurt.

“This $2 trillion asset class right now does not have that (investor) protection. It frankly doesn’t have it in Asia, North America or Europe,” he said.

This is because the ‘platforms’ such as cryptocurrency exchanges where crypto assets are traded are likely trading securities. Unlike traditional exchanges, these platforms do not have clear obligations in place for investor protection.

“There’s no broker in between the public and the platform,” Gensler said. Arguably that’s a key benefit, but brokers are also heavily regulated. So without brokers and limited oversight over exchanges, there is a regulatory gap.

Thus he emphasized the responsibility of financial regulators. “In finance, that’s about protecting investors and consumers, guarding against illicit activity, and ensuring financial stability,” he said.

This echoed his sentiments in a speech to the Aspen Security Forum last month, with Gensler firmly stating that “the legislative priority should center on crypto trading, lending, and DeFi platforms.”

Stablecoins and utility tokens

Stablecoins were also discussed in the speech. Since these are used in most crypto asset trades, stablecoins may offer individuals a way to sidestep anti-money laundering and sanction compliance procedures.

Turning to utility tokens, Gensler contrasted them with laundromat tokens or tickets to the opera, saying that entrepreneurs choose to perceive their tokens in this way to sidestep regulation, but the reality is quite different.

“They are highly speculative investment tokens for people who are trying to save or speculate for their future. And that’s why I think it is appropriate to bring them inside the investor protection perimeter,” he said.

Last week, Senator Pat Toomey of the U.S. Senate Banking Committee  requested legislative proposals to support cryptocurrency innovation.

Meanwhile, Europe is in the process of debating its draft legislation on the topic for “Markets in Crypto-Assets“.