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U.S. lawmakers and crypto firms push back against SEC ‘regulation by enforcement'

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(Kitco News) - In the wake of several high-profile enforcement actions from the U.S. Securities and Exchange Commission (SEC) this week – including lawsuits filed against the two largest cryptocurrency exchanges in the world – the crypto community is rallying to support Coinbase and Binance and is collectively lambasting the actions taken by the regulator as heavy-handed regulation by enforcement.

“The SEC has failed to provide a path for digital asset exchanges to register, and even worse has failed to provide adequate legal guidance on what differentiates a security from a commodity,” said Senator Cynthia Lummis (R-WY). “The SEC’s continued reliance on regulation by enforcement continues to harm consumers.”

Lummis went on to note that the SEC’s failure to provide a clear regulatory framework is the issue at the heart of this situation, and if they don’t act to change that, the crypto industry will eventually abandon the U.S. for more welcoming jurisdictions.

“Real consumer protection requires creating a robust legal framework that exchanges can comply with, not pushing the industry offshore into the shadows,” Lummis said. “This is why Congress needs to pass the Lummis-Gillibrand Responsible Financial Innovation Act.”

Paul Grewal, chief legal officer at Coinbase, echoed this sentiment in a statement posted ahead of his testimony in front of the House Committee on Agriculture on Tuesday.

“Distributed ledger and digital asset technology is, as the White House has stated, critical and foundational,” he wrote. “Despite being identified as potentially critical to US economic and national security, the US is pushing the technology and the innovators overseas due to lack of clear rules and regulations for crypto.”

Grewal went on to cite regulatory advancements in multiple countries – including the UK, Australia, Singapore, China and the European Union – which “are putting in place regulatory frameworks that are creating room for innovation while also protecting consumers.”

“Allowing others to leapfrog the United States in a foundational area of technology is not just bad for our economic future, but also our national security as a broad range of use cases emerge in the years ahead,” Grewal warned. “With more than 20 percent of Americans owning and using crypto, we need a regulatory framework that will protect consumers and enable the critical uses of this new technology to continue and grow.”

During his testimony on Tuesday, Grewal also pushed back against repeated statements by the SEC that they have been willing to help companies get licensed as digital asset brokers and exchanges. After months of discussing how to register with the agency, “We were simply dismissed with no response or any counter-proposal or ideas coming back from the SEC,” Grewal said.

Coinbase CEO Brian Armstrong backed up Grewal's statements on Tuesday, tweeting, “There is no path to ‘come in and register' - we tried, repeatedly - so we don't list securities.”

“Instead of publishing a clear rule book, the SEC has taken a regulation-by-enforcement approach that is harming America,” Armstrong said. “So if we need to avail ourselves of the courts to get clarity, so be it.”

Joining Lummis, Grewal and Armstrong in their criticisms of the SEC is Senator Bill Hagerty (R-TN), a member of the Senate Appropriations, Banking, and Foreign Relations Committees, who tweeted on Tuesday that the SEC “is weaponizing their role to kill an industry.”

Hagerty specifically pointed to the lawsuit filed by the SEC against Coinbase despite the exchange being allowed to go public in 2021. “Allowing a company to list publicly and then stonewalling their attempts to register is indefensible,” he said, adding, “Gary Gensler, expect to hear from Congress.”

The Tennessee Senator previously joined a group of Senators in sending a letter to Federal Reserve Chairman Jay Powell, Chairman of the FDIC Marty Gruenberg, and Acting Comptroller of the Currency Michael Hsu that demanded answers for “federal financial regulators’ application of pressure on financial institutions to cut off services to licensed, legally operating cryptocurrency and digital asset companies.”

WEF calls for global coordination on crypto asset regulation

Regulation on the horizon

The U.S. House of Representatives’ Financial Services Committee has scheduled a hearing on crypto to discuss the industry’s future and provide greater clarity for the cryptocurrency ecosystem.

According to a press release from the Committee Chair, Representative Patrick McHenry, a full committee hearing entitled “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem,” has been scheduled for June 13 at 2 pm EST.

Additional details about what will be discussed at the committee meeting have not yet been provided.

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