SEC Faces Storm of Criticism from The Crypto Industry
Several pressure groups and parliamentarians have sent letters to the United States Securities Exchange Commission (SEC) and its Chairman Gary Gensler about the proposed amendments to the Exchange Act, established in the 1930s. The agency plans to expand the legal definition of what an exchange is. If approved, the move could make it harder for digital asset trading platforms to function.
The letters were sent by the Chamber of Digital Commerce, a blockchain trade association; the Blockchain Association, an industry lobbying group; and Coin Center, a research and advocacy nonprofit. The letters criticize the SEC’s proposal and ask for clarification on several points.
The U.S Securities and Exchange Commission (SEC) is facing criticism from the crypto industry over its proposed amendments to securities laws.
Both Patrick McHenry, the ranking member of the House Financial Services Committee, and Bill Huizeng, the ranking member of the subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, sent Gensler an open letter complaining that the proposed amendments could affect innovation in the cryptocurrency industry.
The proposed amendment to broaden the definition of what an exchange is would mean that players in the crypto sector have to register with the SEC and other regulators. This would stifle innovation as it would increase the amount of red tape crypto players outside the centralized exchange sphere have to deal with.
In particular, lawmakers are worried about the impact that the proposed amendment could have on decentralized exchanges (DEXs), which could be forced to register as broker-dealers under the new definition. This would effectively kill off DEXs, as they would not be able to compete with centralized exchanges that are already registered with the SEC.
Coin Center, the Washington DC-based crypto think-tank has also previously shared its opinion on the amendment claiming that it could actually be against the American constitution. The body also warned of the dangers of “an inappropriately broad standard for registration” implicit in the SEC’s proposals.
Over 120 affected parties, ranging from private citizens to major crypto players, have also written to the SEC about the proposed amendments – mainly to express their displeasure regarding the matter.
Gabriel Shapiro, the General Counsel at the crypto research firm Delphi Digital, claimed that the SEC’s regulations “seek to re-define all ‘communications protocols’ as potential securities exchanges” – and that it might also impact Automated Market Makers (AMMs), liquidity providers for the decentralized finance (DeFi) sector.
Shapiro further wrote: “The proposal would, for the first time, subject these protocols to numerous onerous requirements under the federal securities laws, including registration as a national securities exchange, compliance with burdensome know-your-customer and anti-money laundering regulations, and other significant operational challenges.”
For now, it seems that the SEC is standing its ground on the issue. It now remains to be seen whether the SEC will change its tune in light of the mounting pressure from the crypto industry.