They could make changes if they wanted to.
The SEC is right and wrong at the same time in their crypto-regulation approach. It’s quite simple. By continuing to apply current procedures as is, they are right, and almost every token would undoubtedly be labeled as a security. However, with an open mind, they could easily make some regulatory updates, and demonstrate how easy it could be to find a place for cryptocurrency in the spectrum of regulations under their control.
Sadly, the missing (but necessary) conditions were to have the conviction that the blockchain, cryptocurrency, and token business models are novel enough to warrant such changes.
Instead, the SEC has been hiding behind the pretext there is nothing to change in the current rules while taking cover in Congress’ inability to direct them otherwise.
This is a very disingenuous positional play by the SEC, as it points to a clear discriminatory bias against crypto. Here’s the proof.
A review of SEC’s news announcements over the past year reveals they have proposed numerous changes across the board. This includes introducing new registration forms, updating rules (e.g. best execution rules), opening comment periods on issues, publishing enhancements to their frameworks, modernizing reporting requirements, updating electronic filing requirements, and specifically proposing amendments as they see fit, just to name a few of these actions.
To be precise, here is a chronological sample of such headlines pulled from their website:
- SEC Proposes to Modernize the Submission of Certain Forms, Filings, and Materials Under the Securities Exchange Act of 1934 (March 2023)
- SEC Office of Municipal Advisors Frequently Asked Questions (March 2023)
- SEC Proposes Changes to Reg S-P to Enhance Protection of Customer Information (March 2023)
SEC Proposes to Expand and Update Regulation Systems Compliance and Integrity (SCI), the set of rules adopted in 2014 (March 2023)
- SEC Finalizes Rules to Reduce Risks in Clearance and Settlement (February 2023)
- SEC Proposes Rule to Prohibit Conflicts of Interest in Certain Securitizations (January 2023)
- SEC Proposes Regulation Best Execution, first established in 1968 (December 2022)
- SEC Proposes Enhancements to Open-End Fund Liquidity Framework (November 2022)
- SEC Adopts Amendments to Modernize Fund Shareholder Reports and Promote Transparent Fee- and Expense-Related Information in Fund Advertisements (October 2022)
- SEC Adopts Rule Amendments to Modernize How Broker-Dealers Preserve Electronic Records and Enhance the Electronic Recordkeeping Requirements for Security-Based Swap Entities (October 2022)
- SEC Proposes Rule Amendments to Modernize Beneficial Ownership Reporting (February 2022)
- SEC Proposes Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds (February 2022)
The evidence points to the fact that they “can” implement change…only if they wanted to. All of the above initiatives are a display of the tools and span of changes already at their disposal.
Conspicuously absent from these seemingly progressive updates are specifically positive ones relating to the crypto industry. Instead, all news updates about crypto relate to negative actions such as SEC charges against firms or people, lawsuits, or Wells Notices.
This approach contradicts one of Chairman Gensler’s three goals in the SEC’s FY 2022-2026 Strategic Plan, “…keep pace with evolving markets, business models, and technologies.”
“Keeping pace with evolving markets, business models, and technologies” in the blockchain market has been the last thing on the SEC’s mind, which is why crypto is absent from regulatory innovation. Their modus operandi has been: “Nothing new here.” So, if you’re in crypto, “keep trying to fit your square pegs into our round holes.” The SEC has continued to use the only hammer they wanted to use: enforcement actions.
Token models are very interesting and innovative. They deserve a chance to be accepted.
The industry is not asking the SEC to amend the Securities Act of 1933. It is only asking for some change.
Chairman Gensler, tear down your artificial crypto regulatory wall! Stop hiding behind the mask of rigidity, and adopt the mindset of innovation and flexibility.
In Part II, I’ll discuss how the SEC could take an easy road to regulating crypto without making it too complicated.