(Bloomberg) -- Crypto businesses don’t properly safeguard their customers’ assets and often mix them with their own funds, according to Securities and Exchange Commission Chair Gary Gensler.
“This is largely a noncompliant field,” Gensler said in an interview on Bloomberg Television’s “Balance of Power With David Westin.” “They’re commingling customer funds with their businesses.”
The blunt assessment by Wall Street’s main watchdog follows months of warnings by Gensler and US regulators over potential dangers posed by the digital-asset industry. The SEC has asserted that many tokens and crypto products are really just securities that trade on the blockchain and should be registered with the agency.
On Thursday, the regulator announced that the trading platform known as Kraken had agreed to pay a $30 million penalty to settle allegations that its staking products for American clients violated SEC rules. The firm, which also agreed to discontinue them in the US as part of the deal, didn’t admit or deny the regulator’s claims.
Crypto staking works by letting users generate yields in return for allowing their tokens to be used to facilitate transactions on a blockchain. Like several other digital-asset products, the SEC has said that it can resemble a security that should be registered with the agency.
In his Bloomberg interview on Friday, Gensler took particular issue with how crypto exchanges often play multiple roles. He suggested that their business models can create significant conflicts of interest.
“We don’t let the New York Stock Exchange also run a hedge fund and trade on the exchange; why would we do it here?” Gensler said.
Gensler said that firms should expect additional enforcement actions by the agency unless they start following the regulator’s rules.
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