SEC Explains Itself by Issuing a Risk Alert for Crypto Assets

The SEC pointed out that Risk Alerts are not judgements or warnings or hints at acceptance regarding the subject matter. The alerts only represent the view of the Commission.

SEC Viewpoint

In this case, the SEC’s Division of Examinations observed certain points “during examinations of investment advisers, broker-dealers, and transfer agents” regarding crypto. The SEC then broke down their observations by these groups and pointed to issues that attracted the Commission’s attention.

In general, though, the Commission’s concern’s center on AML, operational security and record keeping, and risk management. Exchanges in particular raise attention for registration issues. That can range from registering with users to the exchange registering with the SEC itself.

Crypto Mom Asks, “How do You Feel?”

SEC Commissioner Hester Pierce, commonly known as Crypto Mom, took to Twitter to solicit opinions.

Some Much Needed Clarity

The SEC and U.S. government in general knows that it has a problem when it comes to cryptocurrency regulation. For the most part, this regulation is patchwork, and interagency clarity is lacking. 

The case of Ripple Labs is one example of where the SEC in particular comes under fire for its lack of clarity and cooperation. Ripple Labs settled securities issues with Financial Crimes Enforcement Network (FinCEN), a Treasury department organ, in 2015, and paid a fine. It has also licensed its XRP token with the State of New York as a digital currency.

However, on Dec. 22, 2020, the SEC filed charges against Ripple regarding an alleged $1.2 billion in unregistered securities sales of XRP. It also filed suit against Ripple’s former CEO Chris Larsen and currency CEO Brad Garlinghouse for another $600 million in unregistered securities sales.

The case brought widespread comment because of the timing. Outgoing SEC Chair Jay Clayton left the Commission just a few days after the cases were filed. However, the lack of coordination between Treasury and the SEC in the matter raised questions as well. Garlinghouse noted that Ripple has operated on the market for seven years since the FinCEN ruling without official comment from the SEC.

Gensler on the Way?

The final piece of the SEC puzzle may be put into place in early March. On Mar. 2, Gary Gensler appears before the Senate Banking, Housing, and Urban Affairs Committee. His nomination will put a new spin on the Commission’s actions. The committee will ask him about how he intends to proceed regarding crypto, and interested parties both inside Washington and out, including BeInCrypto, will be paying careful attention.