SEC Chair Gensler Tells Senate Banking Committee Some Tokens Aren’t Securities

We remain skeptical but SEC Chair Gary Gensler now says he wants SEC staff to work with token projects to create a flexible pathway to registering as securities, The Block writes.

Gensler’s slightly softer remarks came as he testified before the Senate Banking Committee on Wednesday, and while far from what we really want to hear it was a contrast to his remarks last week at the Practicing Law Institute conference in Washington, D.C.

"I have asked staff, in working to register crypto security intermediaries, to recommend a pathway to allow both the crypto security and crypto non-security tokens to trade versus or alongside one another," Gensler says in written testimony submitted to the Senate Banking Committee, where he will appear as part of a regular oversight hearing tomorrow. "Given the nature of crypto investments, I recognize that it may be appropriate to be flexible in applying existing disclosure requirements."

Gensler reiterated the SEC's longstanding position that "most crypto tokens are securities," and that many intermediaries need to register with the SEC, "whether they call themselves centralized or decentralized," Gensler continued, specifically referencing 'decentralized finance.'  

He did acknowledge that under the way the SEC defines it, some tokens are non-security tokens.

As I have stated previously, a small number of tokens likely are crypto non-security tokens, though they may represent a significant portion of the crypto market’s aggregate value. Thus, I have asked staff, in working to register crypto security intermediaries, to recommend a pathway to allow both the crypto security and crypto non-security tokens to trade versus or alongside one another. To the extent that crypto intermediaries may need to one day register with both the SEC and the Commodity Futures Trading Commission (CFTC), I would note we currently have dual registrants in the broker-dealer space and in the fund advisory space.

His full written testimony is available here.

We have written before and continue to believe that the best way for the SEC to regulate tokens has already been proposed by his predecessor, Hester Peirce. Her Token Safe Harbor Proposal 2.0 would create a three-year safe harbor period in which developers.