The Securities and Exchange Commission (SEC) rejected cryptocurrency exchange Coinbase’s request for new digital asset regulations, arguing that current regulations are already in place.
SEC Chairman Gary Gensler said Friday that he supports the decision because existing laws already apply to cryptocurrencies.
“Therefore, federal securities laws apply when cryptocurrency assets are offered and sold in the form of investment contracts and when companies broker transactions in cryptocurrency asset securities,” Gensler said in a statement.
‘Non-compliant cryptocurrency intermediaries’
“As I said before the collapse of one of the largest non-compliant cryptocurrency brokerages that cost investors billions of dollars, meaningful engagement with the SEC is always welcome, and we always welcome cryptocurrency projects and brokerages seeking to comply with the law. We look forward to collaborating,” Gensler continued.
Last April, Coinbase sued the SEC to get a response to a rulemaking request it filed in 2022.
The two went toe-to-toe about the need for rulemaking, with Coinbase ultimately trying to force the agency to say yes or no. Although the agency has not proposed any rules regarding cryptocurrencies, the SEC has proposed rules that would apply to cryptocurrencies over the past year. For example, the SEC keep A rule that requires registered investment advisers to store cryptocurrency with a qualified custodian and requires that custodian to follow certain requirements.
The SEC has also taken, and is currently taking, enforcement actions over the past year, including one against Coinbase for operating as an unregistered exchange. Coinbase said the judge should throw it out. example.
The agency frequently cites the Howey test in these enforcement actions. A 1946 U.S. Supreme Court case involving citrus groves to determine whether the transaction was an investment contract and therefore subject to securities laws.. Gensler said Friday that testing is flexible.
The Howey court said that the definition of an investment contract ’embodies a flexible rather than a static principle, a principle capable of meeting a multitude of variable plans devised by those seeking to use other people’s money.’ ‘The promise of profit,’ Gensler said.
resource allocation
An important part of the SEC’s responsibility is finding ways to allocate resources, Gensler said. He emphasized that the cryptocurrency market is small compared to other capital markets overseen by the agency.
“Cryptocurrency markets are experiencing fraud, abuse and non-compliance at an alarming rate relative to their size, but they nonetheless represent only a small portion of the $110 trillion-plus capital market. The Commission retains discretion to ensure that capital markets are subject to updated regulation. There is a need,” Gensler said.
Coinbase did not immediately respond to a request for comment.
Republican Commissioners Hester Peirce and Mark Uyeda said Friday they disagreed with the agency’s decision, adding that a conversation that could lead to guidance or rulemaking is needed.
“We acknowledge that the Commission has broad discretion to set the timing and priorities of its rulemaking agenda,” they said. “In our view, the petition raises issues raised by new technologies and other innovations, and addressing these important issues is a key part of being a responsible regulator.”
“Any investigation into these issues should include public meetings, concept releases and requests for comment, which will provide an opportunity to hear from a broad range of market participants and other stakeholders,” he added.
Full details updated at 10:40 a.m. ET.
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