As the digital currencies and blockchain technology evolve rapidly, the intersection of law and crypto is becoming increasingly complicated. For example, Paul Grewal, the Chief Legal Officer of Coinbase, has recently expressed significant unease regarding the Securities Exchange Commission’s (SEC) regulatory stance on cryptocurrencies.
SEC’s Regulatory Approach: Enforcement Over Legislation
The SEC, the primary governing body for securities exchanges in the United States, recently responded to Coinbase’s plea for more precise crypto regulation. However, in their court response, the SEC suggested that developing specific rules may take several years, with enforcement actions continuing unabated in the interim. This stance has raised concerns within the crypto industry, seeking more clarity and predictability in regulation.
Court filings from May 15 indicate that the SEC believes it has no obligation to comply with Coinbase’s demands. In addition, the organization argued that Coinbase’s request for an intricate set of reforms and rulemaking was made within an unrealistic timeframe.
The SEC has urged the court to reject Coinbase’s plea for a writ of mandamus, asserting that this extraordinary remedy is inappropriate. In addition, the agency contends that Coinbase fails to demonstrate a valid right to relief.
Crypto Regulations: An Ongoing Debate
Grewal voiced his concerns via Twitter, suggesting that this could be the first instance of the SEC publicly expressing its views on the necessity for crypto industry-specific regulations. Yet, he noted, many questions remain unanswered.
The SEC’s decision to prioritize enforcement actions over rule-making in the foreseeable future has been a particular point of contention. Grewal shared:
“The SEC acknowledged that it will continue to use enforcement actions as a substitute for rulemaking for the foreseeable future, but not to worry — those enforcement actions may eventually ‘inform’ not-yet-planned rulemaking.”
In a surprising twist, the SEC distanced itself from the public comments by its Chair, Gary Gensler, especially those classifying most cryptocurrencies as securities. This move was highlighted by Grewal, who pointed out that the SEC clarified Gensler’s remarks as neither formal guidance nor policy statements.
SEC’s Resistance to Crypto-Specific Rulemaking
The SEC has maintained that it should not be forced into creating rules specifically tailored to the crypto industry. They argue that neither the securities laws nor the Administrative Procedure Act oblige them to issue broad new regulations about ‘digital assets’, as requested by Coinbase.
The SEC also cited the complexity of considering the various paths suggested by Coinbase, noting the relatively short timeframe since the filing of Coinbase’s rulemaking petition.
Part of the SEC’s rationale for seeking to dismiss Coinbase’s petition is based on the claim that Coinbase cannot convincingly demonstrate any damage caused by the SEC’s inaction on the petition since its inception.
The SEC has also denied that its recent enforcement actions in the crypto sector represent a decision not to engage in rule-making, stating, “The Commission continues to consider Coinbase’s petition in the ordinary course.”
SEC’s Response: A Cause for Concern?
Grewal insists that the SEC’s response only solidifies Coinbase’s longstanding apprehensions about the lack of clarity in the SEC’s regulatory jurisdiction. He argued:
“Our industry does not have clarity on what the SEC may consider to be within or outside its jurisdiction at any time, and it is likely to continue changing its mind along the way.”
On the other hand, Gary Gensler, Chairman of the SEC, previously argued in a keynote speech at the Financial Markets Conference that existing rules for crypto were already in place and adequate. This stance, however, seems to contrast with the regulator’s response in court and has added to the confusion surrounding the SEC’s position on crypto regulation.
The SEC: Not Obligated to Craft Crypto-Specific Regulations
The SEC’s recent court filing emphasizes that neither securities laws nor the Administrative Procedure Act impose any obligation on the Commission to establish the expansive new regulations on ‘digital assets’ that Coinbase has requested.
The SEC further stated, “As Coinbase’s own submissions make clear, considering the various paths it suggests is a necessarily complicated endeavor.”
Questioning the SEC’s Enforcement Actions
Coinbase has voiced its concerns regarding the SEC’s preference for enforcement actions over rule-making, arguing that this approach creates uncertainty and potential harm. However, the SEC maintains that Coinbase cannot convincingly demonstrate any injury caused by the SEC’s lack of action on the petition since it was initially filed.
The SEC also disputes the idea that its recent enforcement actions in the crypto industry indicate “a Commission decision not to engage in rulemaking.” Instead, the agency emphasizes that it continues to review Coinbase’s petition in the regular course of its operations.
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