Reps grill Gensler and ‘rogue SEC’ on crypto oversight

Five SEC commissioners, including cryptocurrency skeptic chairman Gary Gensler, testified at a full-scale congressional hearing where the agency was criticized for its “scorched earth” regulatory approach.

U.S. Securities and Exchange Commission Chairman Gary Gensler, along with fellow commissioners Hester Peirce, Mark Uyeda, Caroline Crenshaw, and Jamie Lizárraga, appeared before members of the U.S. House Financial Services Committee to discuss crypto oversight for the first time since 2019.

Lawmakers have criticized SEC Chairman Gary Gensler and the regulator for their aggressive enforcement strategy against digital assets. For years, industry advocates and some politicians have argued that Gensler and the SEC are imposing policy uncertainty on the fledgling industry.

Gensler and dissenting Commissioner Peirce, who has often argued that most cryptocurrencies are securities, were specifically questioned about the SEC’s vague language regarding blockchain-based virtual currencies like Ethereum (ETH).

Peirce noted that the agency has failed to provide regulatory clarity for crypto despite having the tools to clear up confusion. He argued that using vague language, such as implying that crypto tokens are inherently securities, undermines the agency’s ability to oversee markets.

Representative French Hill supported Peirce’s views, adding that the SEC is “leading Congress on crypto regulation” and is attempting to take control of crypto with sweeping enforcement actions. Hill and Peirce emphasized that legislative assistance from Congress could create a comprehensive regulatory framework, especially since the “rogue SEC” has avoided rulemaking.

Representative Tom Emmer has specifically criticized Chairman Gensler for coining terms like “crypto asset security.” The agency recently backed away from that alleged acronym and vowed to avoid using the phrase in future cases.

Ranking member Maxine Waters also called on Chairman Patrick McHenry to resume negotiations on stablecoin policies before the end of 2024, as McHenry is set to retire in early 2025. The two have been discussing regulations for fiat-pegged tokens for months, with experts from Bitwise and S&P predicting that such a bill could transform the global digital economy.

Gensler and SEC under pressure from Congress

The hearing, titled “Overview of the Securities and Exchange Commission,” came shortly after the Financial Services Committee’s hearing, “Dazed and Confused: Teasing Apart the SEC’s Policy Approach to Digital Assets.” Over the past week, Gensler and the commission have faced criticism from lawmakers and special counsel alike.

Former SEC commissioner and Robinhood CLO Dan Gallagher recalled that SEC staff remained almost completely silent when the digital asset exchange attempted to register.

Gallagher’s insightful testimony at the full congressional hearing, which was attended by all five SEC commissioners, reflects the idea that only Congress can resolve the commission’s failure to provide regulatory clarity for cryptocurrencies.

Ahead of the FSC meeting on September 24, Republican lawmakers led by Committee Chairman Patrick McHenry also requested that the SEC, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency rescind Staff Accounting Bulletin 121.

Staff bulletins like SAB 121 are not official SEC interpretations, according to the agency’s website, which GOP Representatives cited. Still, the securities watchdog’s staff appears to have held closed-door meetings with select companies and handed out SAB 121 exemptions.

The news drew the ire of crypto industry participants, who accused the SEC of unfairly picking winners and losers in the competitive digital asset custody market.

It was not immediately clear whether Bank of New York Mellon, the largest U.S. custodian bank, received the SAB 121 exemption in one of the so-called confidential consultations.

Additionally, prior to the GOP letter, Republican politicians had questioned Gensler and the SEC about possible political bias in hiring and promotions. Gensler was scheduled to testify again before the Senate Banking Committee on Wednesday, Sept. 25. But the meeting was postponed and a new date was not available at press time.