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The SEC recently announced that it was doubling the size of its unit which deals with cryptocurrency assets. It plans to increase the footprint of the unit to reach 50 agents. The unit was first launched in 2017 and since then, has brought forward over 80 enforcement actions, mostly related to fraud and unregistered offerings.
It has resulted in monetary relief of over $2 billion. The focus of the new positions will be on crypto asset offerings, crypto exchanges, crypto asset lending and staking products, DeFi platforms, NFTs and stablecoins.
This development brings to mind two juxtaposed positions. The first is that the digital assets industry needs greater security articularly in the realm of ensuring that cryptocurrency exchanges provide adequate security to stymie bad actors.
The industry has been plagued with hacks, and some exchanges refuse to provide the proper resources necessary to keep hackers from infiltrating their technology stacks. According to the press release, ensuring that proper cybersecurity exists is going to be a featured priority of the group.
The press release notes that,
“In addition, the unit has brought numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and for failing to appropriately disclose cyber-related risks and incidents. The Crypto Assets and Cyber Unit will continue to tackle the omnipresent cyber-related threats to the nation’s markets.”
While securing the marketplace is a laudable goal and one that is required for furthering mainstream investment there is a risk looming around the corner. As central banks begin to consider launching their own CBDCs, there is a real risk of regulating bodies taking an authoritarian approach.
If you look at the CBDC rollout in China, it should be a rude awakening that with the wrong regulations in place, financial privacy could well be significantly diminished. With the SEC enhancing its enforcement, what’s positive in terms of cybersecurity could turn into concern if the government takes the wrong tack on privacy rights.
Gary Gensler, SEC chair, said,
“The US has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them. The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets.
“By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.”
What Gensler says is true. The industry needs investors to have faith in the market. We do need to dedicate more resources to protect them. We do need to be better at policing wrongdoing in crypto markets and we certainly need a better handle on ensuring that exchanges are utilizing a quality technology apparatus to enhance cybersecurity.
All of those things enhance the long-term viability of the digital assets space. That said, we must remain vigilant about investor privacy rights. A CBDC with authoritarian leanings is no replacement for cash, and the citizenry won’t stand for it.
It is time for the government to come together with the industry to develop an approach that keeps the citizenry safe from bad actors while preserving privacy and continuing to allow crypto-preneurs to do what they do best innovate.
Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.
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