Gary Gensler had a lot to say about crypto in 2021

The head of the SEC has been vocal on the need for more regulation.

SEC Chairman Gensler

Gary Gensler has a lot to say about Wall Street and crypto.

Photo: Melissa Lyttle/Bloomberg via Getty Images

Click banner image for more holiday coverage for 2021

In his short time heading the SEC, Gary Gensler has shaken up Wall Street and the crypto industry.

Most of this he’s done just with his words, before the agency under his leadership has taken substantial enforcement or regulatory actions.

He’s had a lot of say about the need for stronger regulatory control of Wall Street, crypto and Chinese companies, which has affected markets and drawn strong reactions from the industry.

Gensler, who was confirmed to head the SEC in April, was no stranger to Wall Street, having been a partner at Goldman Sachs. He had a background in cryptocurrency as well, having taught a course on the topic at MIT. That led to some hoping he would prove somewhat friendly to the crypto industry, or at least not hostile.

With his background running the CFTC where he helped reform credit default swaps after the 2008 financial crisis, he was expected to ramp up enforcement on Wall Street after the Trump years. At the time he was confirmed, regulators and politicians were focused on Robinhood and the meme-stock frenzy that took over Wall Street in January. Crypto was barely on Washington’s agenda.

Then Gensler started talking. Crypto said it wanted an informed regulator, but Gensler showed he knew the industry all too well. Here are some of his top moments this year.

“Inherent” conflicts

In early May, Gensler made his first major appearance in Congress as head of the SEC at a House Financial Services Committee hearing. He made it clear that payment for order flow, in which wholesalers pay retail brokers for handling retail orders, would be scrutinized by the SEC.

He noted that payment for order flow can be a “conflict of interest” and that these conflicts were “inherent” in the system. Gensler cited a case that Robinhood settled with the SEC in December 2020, noting that the Robinhood had been able to decide how much of the profit from trading spreads it would keep and how much it would pass on to investors.

Gensler also made it clear he wasn’t happy about the current regulatory environment for crypto.

China watch

In July, Gensler warned of the risks of Chinese companies listing in the U.S. He focused on variable interest entities or VIEs, which Chinese companies have long used to sidestep that country’s restrictions on foreign ownership. Gensler was seeking to provide greater transparency for investors in Chinese companies, which do not always make the same disclosures or receive the same auditing oversight as U.S. companies. Under pressure from both American and Chinese regulators, DiDi delisted its shares from the New York Stock Exchange in December.

“Wild West”

On Aug. 3, Gensler returned to crypto in a speech at the Aspen Security Forum: “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West."

“This asset class is rife with fraud, scams, and abuse in certain applications,” he said. “There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information.”

Two days later, Gensler called for legislation in a letter to Elizabeth Warren to address crypto trading, lending and decentralized finance. It was a recognition that there are some things Gensler can’t do himself at the SEC without federal legislation — which is a likely reason why he has been so public about talking about crypto but has yet to take substantial action.

“In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms,” he wrote. “Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.”

A reminder: Gary Gensler is not your daddy

In September, Gensler told the Senate Banking Committee that he wouldn’t rule out having the SEC regulate stablecoins since “they may well be securities.” While he didn’t come out and say they definitely are securities, he indicated that the SEC could regulate stablecoins — or at least is interested in doing so. Later, in November, the President’s Working Group called for bank-like regulation of the fiat-linked digital tokens.

He also pushed back on senators’ criticism that the SEC has been vague on when a crypto token is and isn’t a security. "I think that there's a fair amount of clarity over the years. I think at the heart of our securities laws [is] protecting investors against fraud. They get to decide. They get to take the risk. I'm not negative or minimalist about crypto. I just think it would be best if it's inside the investor protection regime that Congress laid out."

In perhaps the most memorable exchange of the hearing, he was grilled by a senator on his agency’s view on climate risk disclosure. "The people and the companies that you regulate as chairman of the SEC, do you consider yourself to be their daddy?" Sen. John Kennedy asked.

"No," Gensler said.

"Then why do you act like it?" Kennedy responded. "Why do you impose your personal preferences about cultural issues and social issues on companies. … I'm sure you have you have personal feelings about abortion. Do you have plans to implement or impose those values on companies?"

"Sir, I think I am not doing that," Gensler replied. "What I've been trying to do is say, if investors want information about climate risk, we at the SEC have a role to put something out to notice and comment, do the economic analysis and really see what investors are saying."

Poker face

Later in September, Gensler compared crypto to “poker chips” at a Washington Post event. He again noted that help from Congress would make regulation easier. Still, he said, the SEC already had plenty of room to regulate crypto. “But in terms of the SEC, I do think we have robust authority, but there are gaps as I’ve identified them,” he said.

Meanwhile, a number of major players in the crypto industry had begun responding to Gensler’s jabs. Their response has largely been looking to put someone other than Gensler in charge. Andreessen Horowitz said it was time to “look beyond the SEC,” while Coinbase made an even more direct critique of the agency, proposing a new regulator to oversee crypto. Coinbase was already unhappy about the SEC not approving its Coinbase Lend product.

Marking territory

In a November speech at the Securities Enforcement Forum, Gensler took up sports as a metaphor: “Think about a football game without referees. Teams, without fear of penalties, start to break the rules. The game isn’t fair, and maybe after a few minutes, it isn’t fun to watch.” He went on to defend the SEC’s role in protecting investors.

It was as if he was responding to some of the crypto industry’s proposals and marking the SEC’s territory. While there are many agencies that have oversight on parts of the crypto industry — such as the Office of the Comptroller of Currency and the Commodity Futures Trading Commission — Gensler made it clear he was not giving up the SEC’s role.

And he defended the SEC’s moves to rein in some boundary-pushing firms. “Some market participants may call this ‘regulation by enforcement,’” he said. “I just call it ‘enforcement.’”

Cleanup on aisle three

In December, Gensler talked up the need for proactive regulation, rather than swooping in after a crisis. “We're gonna have a spill on aisle three,” Gensler said at the DACOM Summit. “And the public's gonna say: 'Where was the official sector?'” But he struck a more conciliatory tone at a Wall Street Journal event that month, asking crypto exchanges to “come in, work with the SEC, get registered.” Crypto trading firms that hold customers’ tokens as well as executing orders became a focus of Gensler’s regulatory rhetoric late in 2021, with the SEC chair positioning them as a natural subject for his agency’s oversight.


Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.


Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories