Warren Asks SEC Chair Gensler About Risks Posed by Cryptocurrency Exchanges
"The harms to consumers as a result of this under-regulated market are real and continue to proliferate in the absence of effective SEC regulations."
WASHINGTON, D.C. - United States Senator Elizabeth Warren (D-Mass.), chair of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, sent a letter to the Securities and Exchange Commission (SEC) Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market. While trading on cryptocurrency exchanges has gained popularity, these platforms lack the same types of basic regulatory protections - such as against fraud and manipulation - as traditional securities exchanges like the New York Stock Exchange or Nasdaq. During the six-month period from October 2020 to March 2021, nearly 7,000 people reported losses from cryptocurrency scams, resulting in a cumulative $80 million in losses.
"While demand for cryptocurrencies and the use of cryptocurrency exchanges have skyrocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters," said Senator Warren. "These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets. The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps and ensure that every investor has access to a safe cryptocurrency marketplace."
Cryptocurrency exchanges are platforms where individuals buy and sell cryptocurrencies. These exchanges vary in the type of cryptocurrencies they allow individuals to trade, the fees charged to consumers for using the platform, the disclosures they provide, and whether or not the exchange simultaneously keeps crypto assets in custody. As demand for cryptocurrencies has grown in recent years, the amount of trading activity on cryptocurrency exchanges has also increased, particularly amongst the largest exchanges. The volume of trading on Coinbase, the largest cryptocurrency exchange in the United States, grew from $30 billion in the first quarter of 2020 to $335 billion in the first quarter of 2021, a more than 10-fold increase.
To better understand the SEC's existing tools to protect individuals who participate in crypto exchanges and evaluate the potential need for Congress to take action, the letter asks Chair Gensler to outline the ways in which cryptocurrency exchanges may be undermining the SEC's mission to ensure that markets are operating in a "fair, orderly, and efficient manner," whether the characteristics of assets traded on cryptocurrency exchanges may warrant additional protections for investors and consumers relative to those provided for traditional exchanges, the extent to which the SEC's authority to regulate crypto exchanges may differ from the SEC's authority to regulate traditional exchanges, the extent to which international regulatory coordination may be needed, and the concerns decentralized finance (DeFi) may raise for the SEC's jurisdiction.
Senator Warren has actively called on regulators and led oversight to protect consumers from market-related risks.
- In June 2021, Senator Warren delivered remarks and chaired a hearing with experts on the opportunities and risks that digital currencies present.
- In February 2021, Senator Warren sent a letter to Kenneth Griffin, Founder and Chief Executive Officer at Citadel, questioning the company about its relation with Robinhood amid the GameStop controversy.
- Senator Warren also sent a letter to the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that licenses and regulates broker-dealers, asking how FINRA would respond to Robinhood's role in recent market volatility, its decision to cut off customers' trading, and the broader concerns about market fairness.
- Earlier that month, Senator Warren released Robinhood's response to her February 2, 2021 letter requesting answers on the company's decision to abruptly halt customers' trading and other controversial actions during the market volatility related to the trading of GameStop shares.
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