Securities and Exchange Commission Chair Gary Gensler told Congress that most crypto tokens and intermediaries are subject to U.S. securities laws despite the industry’s “wide-ranging noncompliance.”

Gensler Testimony: Testifying before a Senate Banking Committee oversight hearing, Gensler reiterated the SEC’s position that its investment adviser custody rule already applies to crypto funds and securities, so its proposal to update the rule would ensure it applies to all crypto-assets. He also cited the agency’s reopening of a rulemaking on the applicability of existing rules to platforms that trade crypto-asset securities, including decentralized finance systems.

Member Statements: During the hearing, committee Chairman Sherrod Brown (D-Ohio) expressed support for the SEC’s enforcement actions against crypto firms, saying the problems encountered during the FTX collapse are everywhere in the crypto sector. Meanwhile, Ranking Member Tim Scott (R-S.C.) did not address crypto policy, instead focusing on the volume of new regulations the SEC is putting out.

Exchange Rulemaking: In a comment letter to the SEC in June, ICBA expressed support for the agency’s proposal to confirm that crypto exchanges are included in its definition of “exchange,” requiring them to follow the same rules as other entities that trade securities. ICBA said crypto exchanges should not get a free regulatory pass simply because they use novel technology to facilitate their peer-to-peer trades.

Custody Rulemaking: The SEC last month reopened the comment period on a separate proposal to expand the agency’s custody rules to include crypto assets following an ICBA meeting with Gensler, at which ICBA reiterated its concerns with the proposal. ICBA is concerned the proposal’s revised definition of “qualified custodian”—which would allow financial institutions to act as qualified custodians only if they have possession or control of client assets pursuant to a written agreement—would make some community banks ineligible to be qualified custodians.

ICBA View: More broadly, ICBA has repeatedly called on policymakers to ensure new policies directed at the crypto sector fully reflect its risks and to prioritize research on the specific effects of digital assets on community banks and their customers.