Car keys, footballs: Gary Gensler's approach to regulation

By Gary Gensler

Compiled by Nicky, Foresight News

Two years ago, when I spoke to you here, I quoted President Franklin Roosevelt’s famous words when he signed the first fundamental securities law in 1933: “This law and its effective enforcement are one step in the plan to restore some of the old standards of integrity.”

This year, I will be speaking on the topic of effective enforcement. As is customary, I should note that the following views are mine as Chairman of the Securities and Exchange Commission and do not necessarily reflect the views of other Commissioners or staff.

I believe that our securities laws have contributed significantly to our nation's tremendous economic success over the past 90 years. They benefit investors and issuers when they are enacted, while helping to build trust in our capital markets. They also help to lower costs and reduce risk.

The result is the size, scope and depth of our capital markets. Today, our capital markets exceed $120 trillion and are part of our nation’s comparative advantage, underpinning the dollar’s dominance and our global role. We are the capital market of choice for issuers and investors around the world, accounting for more than 40% of global capital markets, a feat that allows us to have significant influence despite our small size, even though we only account for 24% of the world’s economy.

This is no accident.

President Roosevelt and Congress understood in the 1930s that well-regulated markets build trust and create the conditions for economic success.

Later, Presidents Richard Nixon, Gerald Ford, Ronald Reagan, Bill Clinton, George W. Bush, and Obama, as well as Congress, recognized this time and again as they updated securities laws to best promote our capital markets and economic success.

One of the ways I think about this is by comparing it to the common sense rules of driving or football.

For years, whenever one of my three daughters borrowed the car keys, I could sleep soundly, knowing that common-sense traffic rules protected them. These rules included stop signs, traffic lights, speed limits, and laws against drinking and driving. The police patrolling the streets made sure these rules were enforced, allowing my daughters to drive safely, and me to rest easy.

These traffic rules not only help reduce driving risks, but also promote economic prosperity. Imagine if there were no traffic lights and speed limits a hundred years ago, American automakers might not have achieved such brilliant success, because these regulations allowed American consumers to trust this emerging product.

Likewise, as we enjoy the excitement of football games this fall, imagine what it would be like if the National Football League (NFL) didn't have any rules for the game. Without referees to enforce order, the field would be in chaos and players would get hurt.

These common sense rules in football games not only provide safety for players, but also build fans' confidence in the fairness of the game. Therefore, the existence of rules and referees is an important factor in promoting the continuous development of the game.

The same is true in finance, where common-sense rules can reduce risk and build trust among market participants.

When President Roosevelt and Congress wrote securities laws in the 1930s, they had lived through the 1920s, when con men, fraudsters, scam artists, and Ponzi schemers took advantage of investors for personal gain. They had learned the lesson of unregulated markets being left to run wild. Over the next few decades, as technology and business models changed, subsequent presidents repeatedly saw similar benefits from increased market regulation.

They also know that "traffic rules" should not be limited to preventing fraud. Congress is well aware of the importance of securities information to the public interest, so it has formulated a series of key provisions on information disclosure. At the same time, they have also established important regulations on corporate governance to ensure the standardized operation of enterprises. Congress also attaches great importance to intermediaries and has formulated important provisions involving conflict of interest management, transparency of information disclosure and business conduct standards. These regulations are aimed at protecting the interests of investors and maintaining fairness and justice in the market. In addition, special attention is paid to the gatekeeper role, such as investment banks, auditors, etc., and corresponding provisions are formulated for them to ensure that they play an active role in the capital market and maintain market stability and security.

Cryptocurrency Market

When I joined the SEC in 2021, Commission Chairman Jay Clayton had already filed about 80 lawsuits against participants in the cryptocurrency markets who were not following basic rules, and the Ripple case was one of them.

Chairman Clayton and his committee have discussed these emerging markets frequently, and the committee released the DAO Report just three months after he took office. The SEC remains vigilant in ensuring that entities that issue or sell securities comply with our tried-and-true securities laws. As of 2018, this type of enforcement work has typically accounted for 5 to 7 percent of our overall work.

Multiple courts have upheld our actions to protect investors and rejected all arguments that the SEC is unable to enforce laws governing different forms of securities offerings.

It is important to note that not all assets are considered securities. Former Chairman Clayton and I have made clear that Bitcoin is not a security, and the Commission has never considered it a security. Our focus has always been on a subset of the approximately 10,000 other digital assets, many of which have been determined by the courts to be securities. With this in mind, the remainder of the cryptocurrency market, excluding Bitcoin, Ethereum, and stablecoins, is approximately $600 billion, less than 20% of the entire cryptocurrency market and only about 0.25% of global capital markets.

Here, I would like to emphasize two points:

First, parties that offer or sell securities to the public are required to register and fully disclose relevant information to the public. Second, intermediaries—including broker-dealers, exchanges, and clearinghouses—are required to register and be subject to appropriate regulation of conflicts of interest, information disclosure, and business practices.

Prior to my joining the Commission, numerous applications for Bitcoin exchange-traded funds (ETFs) and products (ETPs) had been denied or withdrawn at the request of the SEC staff. However, shortly after I joined in 2021, the first Bitcoin futures ETF became effective after consultation with Commission staff. While we initially followed our predecessors’ lead with respect to ETPs holding physical Bitcoin, the Commission approved ETPs for physical Bitcoin and Ethereum earlier this year. Investors in these products enjoy transparency of disclosures, strict regulation, lower fees, and greater market competition than in the unregulated cryptocurrency market.

This space has caused significant harm to investors over the years, and the vast majority of crypto assets have yet to demonstrate sustainable use value beyond speculative investment and possible involvement in illegal activities.

Everything we do is designed to ensure compliance with the law. Since the 1930s, we have always believed that compliance is critical. It protects investors, builds trust in our capital markets, and helps issuers access the market. Our 90-year history has proven that strong securities regulation builds trust and drives innovation.

Thoughts

My parents, Sam and Jane Gensler, never worked in finance or even finished college. Yet, when they invested their hard-earned savings in the securities market, our family benefited from common-sense market discipline.

The SEC fosters trust by effectively administering well-regulated securities markets. That's why investors and issuers flock to them with the same enthusiasm as fans at a football game. It's the foundation for the stability of the world's largest capital market. It's the reason our nation has enjoyed such tremendous economic success over the past 90 years.

I could not be prouder to serve alongside my colleagues at the SEC, who work day after day on the financial highways to protect the financial security of every American family.