The United States House Financial Services Committee will hear how the Securities and Exchange Commission is changing its oversight and rules to keep pace with technological advancements, including cryptocurrencies and artificial intelligence.
SEC Chair Gary Gensler is set to outline how the U.S. securities regulator is updating its rules to align with “technology and business models of the 2020s.” As is customary, Gensler’s opening remarks have been published ahead of the Sept. 27 hearing, outlining the SEC’s wider oversight of securities and exchanges in the United States.
There is particular interest in the SEC’s approach to the cryptocurrency sector, which has copped criticism for its “regulate-by-enforcement” approach that has been criticized for quashing innovation and adoption in America.
Gensler will directly address two areas of emerging technology, namely predictive data analytics and cryptocurrencies. The SEC chair is set to stress that investors and issuers involved in “crypto asset securities markets” deserve protections afforded by securities laws.
Referring to the establishment of the 1933 Securities Act, Gensler said that the U.S. Congress made a decision to include a list of more than 30 items in the definition of a security, including the term “investment contract.”
“As I’ve previously said, without prejudging any one token, the vast majority of crypto tokens likely meet the investment contract test.”
Gensler is set to tell the House Financial Services Committee that the SEC’s view that most cryptocurrencies are subject to securities laws also necessitates that intermediaries such as exchanges, brokers and dealers must comply with these laws as well.
The SEC chair suggests that the wider industry has been guilty of “wide-ranging noncompliance with the securities laws,” which has led to a number of enforcement actions. Gensler added that the SEC has looked to address the cryptocurrency “security markets” sector through rulemaking.
This included a reopening release published in April 2023 that reiterated the applicability of existing SEC rules to platforms that trade cryptocurrencies, including decentralized finance (DeFi) protocols. Included in the release were further guidelines for systems that would fall under a new, proposed exchange definition.
“While our current investment adviser custody rule already applies to crypto funds and securities, our proposal updating it would cover all crypto assets and enhance the protections that qualified custodians provide.”
According to the SEC chair, predictive data analytics and artificial intelligence have brought about a “transformational age,” driving efficiencies across the economy. The potential of the technology stands to increase financial inclusion and user experience, but it also poses risks of exploitation.
“This also raises the possibilities that conflicts may arise to the extent, for example, that advisers or broker-dealers are optimizing to place their interests ahead of their investors’ interests.”
Gensler’s address also notes an SEC proposal in July 2023 that would require firms to analyze conflicts of interest arising from the use of predictive data analytics to interact with investors. These potential conflicts would need to be eliminated or neutralized by the firms concerned.
It remains to be seen whether Gensler will be drawn to comment on ongoing legal battles with Coinbase and Binance.US, two U.S.-based cryptocurrency exchanges that the regulator has charged with a litany of alleged securities laws violations.
New laws to reduce the use of short prison sentences and toughen up community punishments are expected to be introduced within weeks.
Ministers are expected to introduce the new legislation to the Commons after the summer recess.
The changes will abolish most short-term prison sentences and introduce an earned release scheme, based on a model used in Texas, where prisoners who demonstrate good behaviour can be freed earlier – while those who disobey prison rules are detained for longer.
This will include some prisoners jailed for violent offences, although those convicted of the most dangerous crimes and for terrorism will be excluded.
Image: Shabana Mahmood (left) was said to be impressed by the system in place in Texan prisons. Pic: PA
The new bill will introduce many of the changes recommended by the independent sentencing review, carried out by former Conservative justice minister David Gauke earlier this year. It represents one of the largest overhauls of sentencing in a generation and marks a cornerstone of the government’s effort to reduce the size of the prison population in England and Wales.
As well as reducing the use of short custodial sentences, the changes will also toughen up community sentences, introducing a wider range of punishments for those serving time outside of prison. This could include bans on going to stadiums to watch sports or music events, as well as restrictions on visiting pubs, and the wider use of drug testing.
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Becky Johnson speaks with Daniel, a former convict, who was released early after prisons reached capacity.
Other punishments could include driving and travel bans, as well as restriction zones – confining them to certain areas. Some of these can already be imposed for certain crimes, but the new laws will mean that these could be handed down by a judge for any offence.
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Under the legislation, which it is understood will be introduced in September, prison sentences of 12 months or less will be scrapped, except for in exceptional circumstances such as domestic abuse cases. Meanwhile, the length of suspended sentences – where an offender is not sent to prison immediately unless they commit a further crime – will be extended from two years to three.
The justice secretary is believed to have been inspired by the earned release scheme during a visit to the States, where she learned about the model being used in Texas to cut crime and bring their prison population under control.
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England is on course to run out of prison places for adult men by November, the Justice Secretary has warned.
Shabana Mahmood said that criminals who break the rules “must be punished” and that those serving their sentences in the community “must have their freedom restricted there, too”.
She added: “Rightly, the public expect the government to do everything in its power to keep Britain safe, and that’s what we’re doing.”
A spokesperson for the Ministry of Justice added: “This government inherited a prison system days away from collapse.
“That is why we are building 14,000 more prison places, with 2,500 already delivered, but we know we can’t build our way out of this crisis.
“Without further action, we will run out of prison places in months, courts would halt trials and the police [would] cancel arrests. That is why we are overhauling sentencing to make sure we always have the prison places needed to keep the country safe.”