The Securities and Exchange Commission is “stretched thin” when it comes to being able to investigate cryptocurrency issues, Chair Gary Gensler told legislators during congressional testimony Wednesday.
Gensler appeared before the House Appropriations Subcommittee on Financial Services to discuss the commission’s fiscal year 2024 budget request, though the conversation vaulted from crypto to the SEC’s proposed climate disclosure rules to the tumult in the banking sector.
After Rep. Mark Pocan (D-Wisc.) asked Gensler if the commission has “adequate resources” with its current budget to investigate crypto, Gensler conceded that things were tight. The crypto field is small compared with the overall capital markets, but with an outsize number of compliance issues, according to Gensler.
“We’ve increased our resources there, but we could always use more,” he said.
Gensler’s concerns about the commission’s ability to oversee crypto investigations is in context of the rapid growth of parties under the SEC’s jurisdiction in recent years. The number of RIA clients ballooned 60% from 34 to 53 million between 2017 and 2022, while average daily transactions in equity markets jumped by more than 30 million to 77 million in that same time period, according to Gensler’s opening statement (the number of RIAs grew 22% during that time).
The agency’s total budget request was $2.436 billion, though its funding is deficit-neutral, with expenses offset by transaction fees. The commission asked Congress to fund 170 new positions, with 50 marked for enforcement and 20 designated for the Examinations Division.
Congress funded 400 new positions in FY2023, according to Gensler; and the commission added 20 additional positions to the Crypto Assets and Cyber Unit in 2022, a doubling of the staffing in that unit, according to the agency’s FY22 Enforcement Report.
The boost for enforcement comes as the SEC received more than 35,000 separate tips or complaints from whistleblowers in FY 2022, more than double the number in FY 2016, though Gensler noted the division shrank by 5% in that time frame.
A number of other divisions, including the Division of Trading and Markets, Office of the General Counsel and Office of International Affairs, are requesting funds to bring on staff specifically for crypto-related duties. For example, the Trading and Markets hire would “continue with in-depth analysis of crypto data and other market monitoring functions,” according to the budget request.
The boost in expertise is to deal with a space in the industry that Gensler described in his testimony as being “rife with conflicts.”
“I’ve been in finance 40-plus years, and by and large most people are trying to comply with the laws as Congress writes them,” he said. “But this is a field that, at its core, has got a lot of noncompliance, and it's with the anti-money-laundering laws, not just the securities laws.”
Democratic representatives worried about the ramifications of cuts to the commission, with Pocan claiming GOP colleagues wanted to return the agency to pre-2022 or pre-COVID-era allocations. When Rep. Norma Torres (D-Calif.) asked about the impact of a 30% cut, Gensler said he hoped it wasn’t on the table.
“I think the investing public would be shortchanged,” he said. “The companies that want to do right by their investors and raise money, the investing public wouldn’t have as much trust in those capital markets.”
The SEC remained busy enforcing crypto asset violations, including suing Beaxy.com this week for simultaneously operating an unregistered exchange, brokerage and clearing business. The commission also recently charged a Grenadian diplomat with selling unregistered crypto asset securities and settled charges with several celebrities (including Lindsay Lohan and Jake Paul) for promoting the crypto assets on social media without disclosing they were compensated for doing so.