Warren asks SEC to take closer look at cryptocurrency exchanges

Sen. Elizabeth Warren (D-Mass.) is asking the Securities and Exchange Commission (SEC) to assess the effect of cryptocurrency exchanges on U.S. financial markets and the risks they could pose to consumers.

In a letter released Thursday, Warren asked SEC Chairman Gary Gensler to explain if cryptocurrency exchanges operate in a safe and efficient way, and what regulatory action might be necessary to protect investors.

“While demand for cryptocurrencies and the use of cryptocurrency exchanges have skyrocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters,” she said.

“These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets. The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps and ensure that every investor has access to a safe cryptocurrency marketplace,” she added.

Warren is the latest Democratic lawmaker to push regulators toward a tougher stance on cryptocurrency trading after a flood of investor demand for digital tokens. While prices for popular cryptocurrencies such as Bitcoin and Ethereum have since plunged from peaks set earlier this year, the rush of activity has raised questions and concerns among many skeptics.

Gensler has expressed an openness to the ways cryptocurrencies could improve or innovate within the financial system, making him more receptive to the industry than many other Democrats. Even so, he’s also raised concerns about a lack of federal visibility and standards for many popular cryptocurrency exchanges.

Many such exchanges are regulated by state money transmission agencies, and a wide range of investment products tied to them fall under the SEC’s purview. 

But cryptocurrency exchanges do not necessarily fall under the SEC’s jurisdiction because the tokens themselves often straddle the lines between securities, currencies and commodities.

Both Gensler and Jay Clayton, his Republican predecessor as SEC chair, have asked Congress for greater authority to regulate the cryptocurrency industry. Doing so will also require coordination among the SEC, the Commodity Futures Trading Commission, the Treasury Department and occasionally bank regulators.

“These regulatory gaps also extend to the way that cryptocurrency exchanges hold an individual’s crypto-assets, which would not be allowed on a traditional securities exchange,” Warren wrote.

“The harms to consumers as a result of this under-regulated market are real and continue to proliferate in the absence of effective SEC regulations.”