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In an effort to combat the new cryptocurrency markets, the US Securities and Exchange Commission (SEC) Chairm Gary Gensler called for a budget increase for the agency. He cited the need for increased vigilance against potential non-compliance in this emerging sector in a speech on July 19:
“We see the Wild West of the crypto markets, full of non-compliance […] I am pleased to support the President’s FY 2024 request of $2.436 billion for SEC operations, to put us on a better path for the future.
Gensler, who gave these statements to the US Senate Committee on Appropriations, emphasized the importance of the SEC’s progress in relation to the growing complexity of the capital markets. He highlighted the SEC’s enforcement division’s track record of imposing $6.4 billion in penalties and disgorgement, following 750 enforcement actions in the 2022 fiscal year:
“Rapid technological change in financial markets is bringing misconduct into new areas, especially in the crypto space. Addressing it requires new tools, skills, and resources.”
However, the SEC’s stance on “regulation by enforcement” is not without its critics. In fact, several lawmakers, including US Representatives French Hill and Dusty Johnson, advocated for a shift toward a legislative approach.
The SEC cannot continue to regulate through enforcement. Lawsuits filed against digital asset companies do not protect the public and stifle innovation and growth.
My letter is to SEC Chair Gensler ⬇️ pic.twitter.com/RjoBNs5YQs
— Rep. Dusty Johnson (@RepDustyJohnson) July 19, 2023
The representatives argued in favor of a statutory framework, a system that mandates compliance with the regulation from the beginning, thus providing protection to consumers before the potential damage is imposed. They expressed this view to Gensler in a July 19 letter, suggesting a pre-emptive strategy rather than the current reactionary enforcement actions.
While the SEC faces the challenge of effectively choosing what a security is and finding a good enough spot Bitcoin ETF to approve, the SEC sees it as a way to protect investors from bad actors before they start, such as:
“Such development and rapid change also means more possibilities for wrongdoing. As police on the beat, we must encounter the game of bad actors. Therefore, it makes sense for the SEC to grow with the expansion and increased complexity of the capital markets.
