Securities and Exchange Commission Chairman Gary Gensler said Monday that his agency is pleased and disappointed with a court ruling that Ripple Labs’ XRP token was not necessarily a security, but implied that cryptocurrency exchanges are not exempt from liability for complying with SEC regulations.
“There is ongoing litigation with a number of these crypto platforms and these platforms are mixing up a number of services that you’ve seen on these crypto platforms where they might as well be trading with their customers, bundling together a bunch of services that we wouldn’t allow anywhere else in our capital markets,” Gensler told Yahoo Finance in an exclusive interview.
His comments were the first since a judge ruled last Thursday that the Ripple-issued XRP token was a security when sold to institutional investors but not to the general public. The SEC sued Ripple in 2020, alleging that the XRP sale was an unregistered securities offering.
The judge’s reasoning was that institutional investors “would have bought XRP with the expectation of profiting from Ripple’s efforts.”
Gensler says the agency is “satisfied” with the part of the decision ruling that the token was a security when sold to institutional investors, but “otherwise disappointed about retail investors.”
“As for the decision,” he added, “we are still looking at it.”
The risks of AI
Gensler also warned Monday of the risks posed by artificial intelligence, noting that a limited number of companies control much of that technology. If one of them got into trouble, that could threaten the stability of the financial system.
“AI may increase financial fragility as it could promote herding with individual actors making similar decisions because they receive the same signal from a base model or data aggregator,” he said. “It could also exacerbate the inherent network interconnectedness of the global financial system.”
Gensler said that many of the challenges to financial stability that AI may pose in the future will require new thinking about regulatory interventions. He said the risk management guidance will need to be updated and will not suffice in its current form.
“It’s very possible that a financial crisis of the late 2020s or 2030s, says the after-action report, we didn’t know that everyone relied on the same basic basis or model for their mortgage information or their stock information.” he said.
Gensler says that AI models are hard to explain and complex and there needs to be a serious conversation among financial regulators around the world due to the growing reliance on the models and their integration with global capital markets.
Gensler is leading a broad legal campaign to crack down on the cryptocurrency industry. Since early 2023, the SEC has charged 15 different crypto actors with violating securities laws.
In both cases, the SEC alleged that the exchanges violated securities law by allowing certain digital currencies to be traded on their platforms.
The crux of the SEC’s case is its argument that certain cryptocurrencies are securities and therefore should be regulated by Washington.
Ripple’s ruling last week was hailed in the cryptocurrency world as a victory over the SEC.
Several digital currencies emerged in the news, including bitcoin (USD-BTC), which reached its highest levels since May 2022.
Coinbase shares also rose late last week; the exchange was quick to say that it would restart XRP trading on its platform.
“We have carefully reviewed our analysis,” Coinbase chief legal officer Paul Grewal said. wrote On twitter. “It’s time to relist.”
Some observers said that the decision was not a clear victory for Ripple.
“I see it as a split decision,” said Mark Palmer, an analyst at Berenberg Capital Markets, who predicts the SEC will appeal the ruling and the case will eventually reach the Supreme Court.
“This is the first round, and it’s not conclusive.”
In fact, Judge Analisa Torres wrote in a footnote to her Ripple ruling that she could not rule on the secondary sales of XRP that take place on exchanges “because that issue is not properly before the Court.”