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Crypto sector calls for more regulatory clarity from the SEC

11:55, 29 July 2022

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An illustration of SEC's logo surrounded by logos of numerous cryptocurrencies.
US financial regulator has come under fire for regulating by “one-off, arbitrary decisions”. – Photo: ShutterStock

Pressure mounts on the US financial regulator, the Securities and Exchange Commission (SEC), to come forward with a clear framework around unregistered securities and digital assets. Crypto executives and lawyers are calling on the financial watchdog in unison: regulate through clear rules, not arbitrary enforcement. 

Cryptocurrency issuers Ripple Labs and LBRY and a cryptocurrency exchange Coinbase (COIN) are three companies in the middle of a spat with the US regulator about whether their respective tokens XRP and LBC - or tokens listed on their platform - are unregistered securities and therefore unlawful.

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Ripple: Rather than providing clarity, SEC seeks to bully

The beginning of the SEC’s battle with Ripple Labs dates back to December 2020. Yesterday, General Counsel for Ripple, Stu Alderoty, wrote in an opinion piece:

“Rather than provide regulatory clarity through rulemaking, the SEC seeks to bully the market by filing, or threatening to file, enforcement cases. Unproven allegations masquerading as regulation is bad policy that hurts consumers and markets who are whipsawed by the whims of an unchecked regulator.”

LBRY: They are making this up as they go 

The SEC filed a complaint against LBRY for failing to register its offering, cryptocurrency LBC, in March 2021. Last week, a Summary Judgement Arguments hearing was held. And on July 21, 2022, LBRY's chief executive Jeremy Kauffman told CryptoLawTV:

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“Even at court, not a single SEC representative was willing to articulate what the SEC standards are. That's because they don't know. They are making it up as they go. I've been dealing with this for almost five years, asking for permission on how I can legally run this business, and never received any constructive feedback.”

Coinbase: ‘One-off, arbitrary decisions that provide little clarity or guidance to the industry’

Earlier this week reports that SEC launched a probe into whether some of the assets listed Coinbase are unregistered securities, sent COIN's shares plummeting 21%.

Last week, Coinbase started a petition calling on SEC to develop a “workable regulatory framework for digital asset securities guided by formal procedures and a public notice-and-comment process, rather than through arbitrary enforcement or guidance developed behind closed doors”. 

Coinbase chief policy officer, Faryar Shirzad, wrote in a blog post:

“We hope the petition will launch a broader conversation where members of Congress — many of whom also see the need for the regulations to evolve — will provide their views. Doing this right will help to avoid one-off, arbitrary decisions that provide little clarity or guidance to the industry, and will instead result in a clear set of comprehensive rules, much like important jurisdictions around the world are working toward.”

Coinbase (COIN) share price: 

Congressman Huizenga: ‘SEC should stop using regulation by enforcement to provide clarity’ 

Coinbase's hope to broaden the debate to members of Congress seemed to have brought fruits. Congressman from Michigan, Rep. Bill Huizenga, wrote on Twitter in response to SEC Commissioner Gary Gensler on July 28, 2022.

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