On February 7, 2023, the Examination Division of the US Securities and Exchange Commission (SEC) released its list of examination priorities for 2023. According to SEC Chair Gary Gensler, the emphasis remains on protecting investors and ensuring compliance with federal securities laws and rules. “Emerging Technologies and Crypto-Assets” are on the priority list for 2023.
According to the February 7, 2023 SEC press release, broker-dealers and Registered Investment Advisors (RIAs) using emerging financial technologies will be examined on their processes for trading in crypto or crypto-related assets and against their compliance, disclosure, and risk management practices.
On February 9, 2023, the SEC announced that it had charged Payward Ventures Inc, trading as Kraken, for failing to register the offer and sale of their crypto-asset service. Kraken paid a fine of US$30 million and immediately ceased offering its crypto asset staking services to US customers.
“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” said SEC Chair Gary Gensler. “
In January 2023, the SEC charged Nexo Capital Inc US$22.5 million for failure to register its crypto lending product. Nexo also agreed to cease offering its crypto asset lending product.
The SEC is involved in several legal cases with various individuals and crypto companies. Unconfirmed reports indicate that the SEC could sue the blockchain infrastructure platform Paxos over issuing Binance USD (BUSD) as an unregistered security.
In October 2022, the SEC charged Kimberly Kardashian for promoting a crypto asset on her social media account and did not disclose the compensation of about US$250,000 from the issuer of the security. The SEC charged Kardashian with US$1.26 million in penalties, disgorgement, and interest.
In a legal case against Ripple initiated in 2020, the SEC alleged that Ripple sold its XRP tokens to investors without registering them as a security. It is still uncertain when a conclusion on this matter shall be made.
The Examination Division of the SEC is doubling down on its mission of protecting investors, ensuring market integrity, and supporting responsible capital formation through risk-focused strategies.
Opinions are divided over the SEC’s approach to enforcement, with some terming it as “regulation by enforcement.” The full extent of the roles to be played by federal regulators or agencies on crypto regulation is still pending in congress.
Innovation and growth within the crypto industry will benefit once there is more clarity on expectations from regulators and as soon as crypto regulations are finalised.