During a House Financial Services Committee hearing on digital assets, Ranking Member Maxine Waters (D-CA) said she is concerned that the recently-introduced discussion draft of a bill aimed at implementing regulations in the crypto industry would allow crypto companies currently facing enforcement actions from regulatory agencies to continue their operations.
During the June 13 hearing titled “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem,” Waters used her opening remarks to highlight concerns about the Digital Asset Market Structure Discussion Draft, a press release from the committee reported. In addition to her concern related to enforcement actions, Waters said the draft bill was lengthy, “highly complex,” and just introduced the week before the hearing. She noted that input from the administration, independent regulators and stakeholders was needed.
“I have some initial concerns I’d like to discuss today,” Waters said at the hearing, according to the release. “For starters, I am particularly worried that the Republican bill would allow crypto firms that are currently being sued for violating our securities laws to continue doing business through provisional registration.”
Waters said that “disgraced” former FTX CEO Sam Bankman-Fried “defrauded millions of customers” and that the crypto exchange “illegally commingled customers’ funds to make undisclosed investments and to trade against its own customers.” She accused Republicans of wanting to “legitimize this illegal practice” and “allow customer funds to be put at risk.”
Waters also cited SEC Chair Gary Gensler as saying that “the door is always open for crypto companies to register with the SEC,” and that “our securities laws—which have worked for every other industry for 90 years—can also work for crypto firms.”
SEC Commissioner Hester Peirce said in a December episode of the podcast "gm from Decrypt" that although the SEC has encouraged crypto companies to come to them and discuss potential roadblocks, the SEC's process is so slow that it could be driving business out of the U.S.
"For me because, I've been at the SEC since 2018, to see no real movement, positive movement in that time is frustrating," Peirce said. "I think another piece that we as regulators tend not to understand is that, you know, you can have a process whereby people come in and talk to you, but if someone is getting funding to build a project and your process takes, you know, two years, three years, four years, like at some point the person funding your project is going to say, ‘You know what, could you just go build that somewhere else, because it's not working in the US.’ So we've got to be a bit more pragmatic about that too.”
Earlier this month, the SEC filed lawsuits against leading crypto exchanges Binance and Coinbase, accusing the companies of violating securities laws.
The SEC sent a Wells notice to Coinbase in March notifying them of the upcoming enforcement action, to which Coinbase Chief Legal Officer Paul Grewal responded with a blog post emphasizing the fact that Coinbase has repeatedly tried to remain compliant with the SEC. Last summer, the SEC asked Coinbase if it would be interested 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 the company 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," Grewal said. "We got none." He noted that the SEC also declined multiple invitations to provide feedback or raise questions about Coinbase's listing process.
Grewal stated in a March Twitter post that the SEC approved Coinbase's application to go public in 2021.
"Now they have changed their mind on what is allowed," he said in the post.
Grewal also said that Coinbase's challenge in becoming registered is unique to the SEC, and Coinbase has not had the same problem with other regulatory agencies or in other countries.
"In 2018, we acquired two broker dealer licenses in an effort to become regulated by the SEC," he said in the post. "These licenses are currently dormant, and we have been unable to activate them with the SEC for digital asset securities...For comparison, over many years we have been able to successfully become a licensed and regulated crypto business in a number of other jurisdictions around the world, including Singapore, Ireland, Australia, and Germany...We've also been able to successfully become regulated by another U.S. federal regulator, obtaining our DCM and DCO license from the CFTC. And by many U.S. state regulators. The SEC remains a sole outlier here."
Binance responded to the SEC's lawsuit in a blog post, saying, "Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry."
