Fintech

Gary Gensler is not your daddy, and other lessons from the Senate hearing

Some senators gave Gensler a hard time, while others urged him to take more action to rein in crypto.

​Gary Gensler at a 2013 hearing.

SEC Chair Gary Gensler was grilled Wednesday by members of the Senate Banking Committee.

Photo: Andrew Harrer/Bloomberg via Getty Images

Gary Gensler was back at the Capitol Tuesday for a round of intense and sometimes caustic grilling in what is turning into a high-profile — and controversial — stint as chairman of the Securities and Exchange Commission.

Gensler fielded questions and comments from members of the Senate Banking Committee who alternately said he was making life too hard for the crypto industry or wasn't doing enough to rein it in. And there were those who were upset by his push for more corporate disclosures on climate change.

"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 Gensler.

"No," Gensler answered.

"Then why do you act like it?" Kennedy shot back. "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 said. "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."

Many of the questions, though, focused on the hottest topic that the SEC has been grappling with since Gensler took over in April: crypto.

Gensler has taken a lot of heat for his views on bitcoin and other cryptocurrencies. Some digital tokens, he argues, are in fact securities that need to be regulated.

The SEC in December, before Gensler assumed the chairmanship, had sued Ripple executives, arguing that its XRP token was a security. Last week, Coinbase said the SEC has threatened to sue the crypto marketplace if it rolled out a crypto lending product.

But Sen. Pat Toomey said Gensler and the SEC have been vague on this issue.

"We need to have clarity on this," Toomey told Gensler. "We certainly shouldn't be taking enforcement action against somebody without having first provided that clarity."

Gensler disagreed. "I think that there's a fair amount of clarity over the years," he said. "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."

Gensler appeared to have an easier time with the questions from Sen. Elizabeth Warren, one of the most outspoken critics of the crypto industry.

"Chair Gensler, advocates say crypto markets are all about financial inclusion, but the people who are most economically vulnerable are the ones who are most likely to have to withdraw their money the fastest when the market drops. Does this sound like the path to financial inclusion to you?" she asked.

"It's a highly speculative asset class, it doesn't sound like the path that you mentioned," Gensler said.

Warren clearly sought action from the SEC chair. "Regulators need to step up" in dealing with the rise of crypto and "ensure that we're actually building the inclusive financial system that we need," she said.

She's been pushing major federal agencies, including the SEC, the Treasury Department and the Consumer Financial Protection Bureau, to get their act together in coming with new rules to deal with crypto.

"Chair Gensler, I expect you and the SEC to take a leading role in getting this done," Warren said.

"Thank you," said Gensler.

Warren and Gensler exchanged letters this summer about whether the SEC had enough authority to regulate crypto.

Fintech

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Illustration: Christopher T. Fong/Protocol

The sharp drop in cryptocurrency prices has spurred fears that the notoriously volatile industry is about to go through another prolonged slump.

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