During a House Financial Services Committee hearing last week, lawmakers raised concerns about the regulatory approach to digital assets in the U.S. and highlighted the lack of a clear regulatory regime for trading platforms.
A spokesperson for Binance, the largest crypto exchange in the world, told Federal Newswire they agree that clear regulations are needed for the crypto industry to safeguard people who use crypto and to encourage the development of new technology and solutions in the industry.
“We support the committee's call for clearer regulations and look forward to working with all interested parties to craft the necessary regulations to protect consumers and support innovation,” a spokesperson from Binance told Federal Newswire.
Led by Chairman Patrick McHenry (R-N.C.), members of the Financial Services Committee sent a letter to U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler ahead of the hearing, criticizing the SEC's approach to regulating digital asset trading platforms. They said Gensler has "failed to provide a path that allows digital asset trading platforms to register," the letter states. "Without clear rules of the road, your push for firms to ‘come in and register’ is a willful misrepresentation of the SEC’s non-existent registration process."
During the hearing, McHenry said Gensler is "punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them...Regulation by enforcement is not sufficient nor sustainable." He also raised concerns that the SEC's rulemaking process is being rushed, and said he expects Gensler to "play a constructive role" in formulating laws governing digital assets. He warned that the Gensler's approach "is driving innovation overseas and endangering American competitiveness."
Coinbase, the largest crypto exchange in the U.S., raised concerns about the SEC's "come in and register" stance last month after the SEC sent Coinbase a Wells notice, notifying the company of a potential enforcement action. Paul Grewal, Coinbase's chief legal officer, said in a blog post in response to the notice that Coinbase has repeatedly asked the SEC to put out clear regulatory guidelines so that Coinbase and other crypto companies can follow them, but he said the SEC has not been communicative. Last summer, the SEC asked Coinbase if it would be interesting in registering with the SEC and laying out what a potential path for registration would look like, given that a path for crypto exchanges to register does not currently exist. Coinbase said it was absolutely interested in registering with the SEC and developed and proposed two different models for registration.
"We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none," Grewal said. "If our regulators cannot agree on who regulates which aspects of crypto, the industry has no fair notice on how to proceed. Against this backdrop, it makes no sense to threaten enforcement actions against trusted public companies like Coinbase who are committed to playing by the rules," Grewal said.
U.S. Bankruptcy Judge Michael Wiles wrote in a March 11 opinion that the absence of clear regulatory guidelines for digital asset issuers in the U.S. has created a "highly uncertain" environment for those companies, many of which, Wiles pointed out, have been operating for years "without being subject to clear and well-defined regulatory requirements."
Wiles continued, "Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities that are subject to securities laws, or neither, or even on what criteria should be applied in making the decision. This uncertainty has persisted despite the fact that cryptocurrency exchanges have been around for a number of years."
He added that the SEC's actions might foreshadow "a wider regulatory assault," but also pointed out that the SEC and the CFTC have sometimes acted in ways that contradict each other when it comes to the crypto industry.
