Georgetown Law
Technology Review

New SEC Leadership

On January 18th, 2021, President Joe Biden announced his plan to nominate Gary Gensler, a professor of blockchain technology, digital currencies, and financial technology at the Massachusetts Institute of Technology, to chair the U.S. Securities and Exchange Commission (“SEC”). The official nomination was sent to the Senate on February 3rd. If confirmed, Gensler would take charge of an agency undergoing significant change with regard to its regulation of cryptocurrencies and fintech. Under former Chairman Jay Clayton, the SEC brought 56 cases involving fraud or registration violations against crypto-related firms, established a dedicated Cyber Unit to address cyber-related securities misconduct, and created a stand-alone office for the Strategic Hub for Innovation and Financial Technology (“FinHub”). During the administrative transition period, the SEC made headlines for aggressively pursuing allegations of unregistered crypto-based offerings by Ripple and investigating digital fraud in the GameStop trading frenzy.

Gary Gensler on Crypto and Fintech

Gensler, a former chairman of the Commodity Futures Trading Commission (“CFTC”) under the Obama Administration, is poised to carry cryptocurrency and fintech through this period of regulatory change — not just with substantial expertise, but with a distinct policy orientation as well. Gensler has candidly conveyed his view that cryptocurrencies be treated both as securities and commodities, noting in 2018 that “probably well over a thousand” cryptocurrencies should come under regulatory compliance. In doing so, he emphasized the clear expectation of profits expressed by ordinary purchasers of cryptocurrencies. In a similar vein, Gensler has referred to cryptocurrencies and blockchain technology as an “innovative irritant” and argued that crypto exchanges have “not yet [been] appropriately brought within public policy frameworks.”

Impact on the Markets

Gensler has a reputation for zealous and progressive regulatory action. During his tenure at the CFTC, he was considered one of the toughest regulatory heads of the Obama Administration, known especially for his efforts to reel in speculative trading by banks following the Great Recession. Nonetheless, many investors and industry players are optimistic about the new SEC leadership. Some industry experts believe that Gensler’s expertise in the technology space bears good tidings for the market. Further, crypto operators may enjoy greater certainty about their place in the regulatory framework, the rules of which have at times been difficult for market actors to understand. The Biden Administration’s general commitment to international cooperation may also permeate the SEC’s work, bringing possible harmonization to the global regulation of these sectors.

Investors should enjoy certain changes to the regulatory outlook, as well. Although the previous administration’s focus on minimizing digital fraud will almost certainly carry over into Gensler’s leadership, the SEC will likely begin to prioritize investor protection over the promotion of capital formation as it pertains to crypto-assets. This comes against the backdrop of what some say was an undue focus of the prior administration on capital formation. In a December 2020 report, Rick Fleming, the SEC’s in-house investor advocate, claimed that the agency “engaged in numerous rule-makings of a deregulatory nature” last year that “often had the effect of diminishing investor protections.” What this means in practice, for example, is that the Gensler SEC could potentially green-light retail Bitcoin exchange-traded funds, albeit with close regulatory oversight. As these changes ultimately materialize, it will be an interesting period of evolution for the landscape of digital assets and fintech.