The Securities and Exchange Commission (SEC) in the United States is updating its oversight and rules to keep pace with technological advancements, including cryptocurrencies and artificial intelligence (AI). SEC Chair Gary Gensler will outline these updates to the United States House Financial Services Committee, emphasizing the need to align rules with the technology and business models of the 2020s.
One area of particular interest is the SEC’s approach to the cryptocurrency sector. The SEC has been criticized for its “regulate-by-enforcement” approach, which has been accused of stifling innovation and adoption in America. Gensler will address this criticism by emphasizing that investors and issuers in the crypto asset securities markets deserve the protections provided by securities laws.
Gensler highlights the fact that the majority of crypto tokens likely meet the investment contract test, as established by the 1933 Securities Act. This means that most cryptocurrencies should be subject to securities laws, and intermediaries such as exchanges, brokers, and dealers must also comply with these laws.
The SEC chair points out that the wider industry has demonstrated noncompliance with securities laws, leading to enforcement actions. To address this, the SEC has implemented rulemaking efforts, including a reopening release in April 2023 that clarifies the applicability of existing SEC rules to platforms trading cryptocurrencies, including decentralized finance protocols.
In addition to cryptocurrencies, Gensler also focuses on the impact of predictive data analytics and AI. These technologies have brought about a transformative age, driving efficiencies across the economy. However, they also present risks of exploitation and conflicts of interest.
To address these risks, the SEC proposed in July 2023 that firms analyze conflicts of interest arising from the use of predictive data analytics when interacting with investors. Firms would be required to eliminate or neutralize these conflicts to ensure investor protection.
It remains to be seen whether Gensler will comment on the ongoing legal battles involving Coinbase and Binance.US, two U.S.-based cryptocurrency exchanges facing allegations of securities law violations.
Overall, the SEC’s efforts to update its oversight and rules demonstrate its commitment to keeping up with technological advancements and ensuring investor protection in the rapidly evolving landscape of cryptocurrencies and AI.