In a letter to SEC Chair Gary Gensler, Senator Elizabeth Warren (D-MA) requested information on the SEC's authority to regulate cryptocurrency exchanges. Senator Warren highlighted the "unique risks" of manipulation and fraud in connection with such exchanges, stating that they (i) lack the regulatory protections of traditional national securities exchanges and (ii) may be able to avoid regulatory obligations if the asset being traded does not qualify as a security under federal law.
Senator Warren stated that due to regulatory gaps, investors and consumers are currently "vulnerable to dangers in this highly opaque and volatile market." Senator Warren's letter cites a number of studies and articles asserting manipulation, improper trading activities and fraudulent trade reporting on cryptocurrency exchanges.
To determine whether congressional action is needed, Senator Warren asked that Mr. Gensler address the following points of inquiry by July 28, 2021:
whether cryptocurrency exchanges currently operate in a "fair, orderly, and efficient" manner;
the differing characteristics of assets traded on cryptocurrency exchanges and those on traditional securities exchanges;
the scope of the SEC's existing authority to regulate cryptocurrency exchanges;
the extent to which international coordination will be needed to address regulatory gaps;
whether Mr. Gensler agrees with CFTC Commissioner Dan M. Berkovitz's assessment that the absence of intermediaries to monitor decentralized finance platforms means a lack of investor protection and, if so, how the SEC should address this issue within its jurisdiction (see related coverage); and
whether decentralized cryptocurrency exchanges warrant additional protections relative to those for centralized cryptocurrency exchanges.
At the FIA and SIFMA AMG Asset Management Derivatives Forum 2021, CFTC Commissioner Dan M. Berkovitz raised concerns regarding the legality of decentralized finance. He also described how the CFTC can support the transition to a carbon-neutral economy and highlighted recent agency regulatory developments.