US markets regulator plans more scrutiny of cryptocurrencies and 'blank cheque' companies

SEC head Gary Gensler said he wants to bring the same kind of protection to crypto exchanges that an investor in a New York Stock Exchange-listed company would expect

The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their  headquarters in Washington, D.C., U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly
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Wall Street’s main regulator is signalling that the Biden era will spell tougher oversight for cryptocurrencies and blank-cheque companies, two of the white-hot market’s most talked-about asset classes.

US Securities and Exchange Commission chairman Gary Gensler on Wednesday told politicians that special purpose acquisition companies and digital coins posed significant policy and investor protection questions. He referred to SPACs, shell companies that list on stock exchanges for the purpose of buying other firms and making them public, as “blank-cheque IPOs”.

The financial world has been anxiously waiting to see how Mr Gensler will steer the SEC at a time when retail investors have helped to drive markets to record highs. Crypto enthusiasts, who had been hoping the regulator would take a more accommodative approach to digital coins, have thus far been disappointed – and on Wednesday they got more of the same.

“I look forward to working with fellow regulators and with Congress to fill in the gaps of investor protection in these crypto markets,” he said in remarks prepared for a House Appropriations Committee subcommittee. He raised concerns about everything from crypto exchanges to decentralised financial platforms.

During the hearing, Mr Gensler went further, adding that he wanted to bring the kind of protections to crypto exchanges that a stock investor would get on New York Stock Exchange or Nasdaq platforms.

On equity markets, Mr Gensler discussed how the SPAC boom – along with the surge in IPOs and direct listings – had placed a “a lot of demands on the SEC’s limited resources”. He said that the agency has spent significant time on the issue, citing guidance issued last month for how companies should account for warrants held by early investors in SPACs.

“Beyond the real demands on SEC resources, the surge of SPACs raises a number of policy questions,” Mr Gensler said. “First and foremost, are SPAC investors being appropriately protected? Are retail investors getting the appropriate and accurate information they need at each stage – the first blank-cheque IPO stage and the second target IPO stage? Second, how do SPACs fit in to our mission to maintain fair, orderly and efficient markets? It could be the case that SPACs are less efficient than traditional IPOs.”

During the hearing, Mr Gensler signalled that oversight on private equity was also likely to be stepped up. He said he has asked staff to review the current regulatory disclosures that firms must file with the SEC and to look at the structure of relationships between asset managers or general partners and limited partners, which are often pension funds.