SEC Chairman says cryptocurrency falls under security-based swaps rules

Published at: July 21, 2021

The United States Securities and Exchange Commission may soon issue new rules for the regulation and registration of security-based swaps, including cryptocurrency.

In a speech to the American Bar Association Derivative and Futures Law Committee, SEC Chairman Gary Gensler laid out the changes coming to security-based swaps over the next year. The changes are designed to increase transparency and reduce risk to the market. The new requirements that will go into effect in November include new counterparty protections, requirements for capital and margin, internal risk management, supervision and chief compliance officers, trade acknowledgement and confirmation, and recordkeeping and reporting procedures. Starting next February, for instance, swap data repositories will be expected to disclose data about individual transactions to the public.

Gensler clarified:

“Thus, I’ve asked staff to consider ways we can continue to increase transparency and reduce risk through our unused authorities, particularly with regard to security-based SEFs [Swap Execution Facility] and position reporting.”

Toward the end of his speech, Gensler said trade reporting rules will apply to cryptocurrencies if the products are security-based swaps:

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.”

Any offer or sale to retail participants must be registered under the Securities Act of 1933. Gensler said the SEC will use all of the tools they have to make sure investors are protected in these cases.

Regulations for cryptocurrencies have been a major talking point within a number of U.S. government agencies in recent months. The Chairman of the Federal Reserve took a hard line on the need for stricter regulations for stablecoins on July 14, going on to discuss the possibility of a U.S. digital dollar before Congress last week. A bill was also introduced to Congress that is meant to provide greater legal definition to digital assets and reduce the fear of future regulations with regard to blockchain-based tokens. On Monday, a meeting on regulations for stablecoins by the President’s Working Group on Financial Markets shared that it expects to release recommendations for such regulations in the coming months.