U.S. Lawmakers Critique SEC’s Crypto Regulation

Some U.S. lawmakers and crypto industry leaders have criticized the SEC’s regulation approach towards crypto, despite some firms obtaining licenses for compliance.

Tensions between the SEC and U.S. lawmakers are increasing over the possibility of registering with the agency and adhering to its rules. The SEC has consistently warned that crypto exchanges must register and has classified most cryptocurrencies as securities. This past year, it has charged major firms like Coinbase, Binance, and Kraken for operating without registration.

Crypto firms argue that it’s challenging to register due to existing rules designed for traditional entities, unlike the digital asset industry. SEC Chair Gary Gensler suggested that registration is straightforward, which Rep. French Hill pointed out during a House Financial Services subcommittee hearing titled “Dazed and Confused: Breaking Down the SEC’s Politicized Approach to Digital Assets.” Hill criticized the SEC’s aggressive enforcement approach, stating it targets companies attempting to register.

Dan Gallagher from Robinhood Markets provided insight into the firm’s communications with the SEC over a year and a half regarding its crypto business registration. Gallagher indicated Robinhood’s commitment to compliance, expressing confusion over the lack of published guidelines for registration. The firm engaged with the SEC about obtaining a special purpose broker-dealer license, which allows custody of crypto assets.

So far, firms like Prometheum and tZERO Group Inc. have received this license. However, Prometheum has faced criticism from the crypto industry, with allegations of having a favorable agreement with the SEC. Gallagher expressed that the special purpose broker regime doesn’t adequately suit digital assets and suggested modifications to improve it.

Following a cordial relationship, communication with the SEC altered in early 2023 when an abrupt note from the chair’s office signaled a halt in discussions. Subsequently, Robinhood Crypto received a Wells Notice from the SEC in May.

Crypto-friendly Democratic Rep. Wiley Nickel criticized the SEC’s approach as politicized, arguing it harms consumers, innovation, and American competitiveness. In contrast, Democrat Rep. Stephen Lynch maintained that the rules for crypto companies are clear and suggested that it’s the crypto industry playing politics given their substantial contributions to federal elections this year.

In summary, the lawmakers accused the crypto industry of falsely portraying SEC actions as politically motivated while claiming they unfairly target certain companies without just reason.