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.
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. Reuters / Andrew Kelly

Gary Gensler, the head of the U.S. securities regulator, said on Monday the agency is weighing how it could extend investor protections afforded to users of exchanges and alternative trading platforms to crypto trading platforms.

The expanded Securities and Exchange Commission (SEC) oversight would see the agency regulate platforms on which the trading of securities and non-securities is "intertwined" by requiring them to register with the SEC, Gensler said in a virtual speech to an audience at the University of Pennsylvania, his alma mater.

The agency will also collaborate with the Commodity Futures Trading Commission - its sister market regulator - to scrutinize platforms that trade both crypto-based security tokens and commodity tokens, said Gensler, adding that a potential "segregation" of token custody between trading platform assets and customers' assets would also be considered to help stave off theft.

"The crypto market is highly concentrated, with the bulk of trading taking place on only a handful of platforms...which play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way," Gensler said.

"Any token that is a security must play by the same market integrity rulebook as other securities under our laws."

Much of crypto trading is based in offshore jurisdictions and operates in a regulatory gray area because they do not have a centralised system of oversight, which allows such trading to bypass the traditional gatekeepers of finance such as banks and exchanges.

While some platforms, like decentralised finance - or DeFi - platforms, allow users to lend, borrow and save in digital assets without many requirements, they lack a central operator.

SEC Chair Gary Gensler, who has previously likened trading on these platforms as that of a "Wild West," said Monday's move is aimed to better protect retail investors using all crypto trading platforms.