SEC Wants To Expand Regulations For Crypto Exchanges

April 5, 2022 7:02 pm

The SEC has recently announced that they will be looking into ways to regulate crypto exchanges after declaring that these exchanges operate in a way that is similar to a securities broker.

As a result the committee has been putting pressure on crypto exchanges such as Coinbase to follow SEC rules and regulations with the presumption that the digital assets traded on the exchange are considered securities.

So far, the exchanges have refused to follow the SEC’s directions based on the defense that the assets that are traded are not considered securities and regulatory oversight would greatly impede the business.

This latest push from the SEC has been spearheaded by Gary Gensler with his reasons being that investors on these exchanges need to be protected the same way as traditional regulated exchanges.

Needless to say, crypto investors and firms are reacting negatively to that claim.

FoxBusiness.com reports:

“These crypto platforms play roles similar to those of traditional regulated exchange,” Gensler said in a speech for an event hosted by the University of Pennsylvania’s law school. “Thus, investors should be protected in the same way.”

Coinbase declined to immediately comment when reached Monday.

Though they call themselves exchanges, crypto-trading platforms differ from regulated securities exchanges in a number of ways.

In the equity market, an investor will place an order to buy or sell a stock through a broker.

The broker typically sends the order to an exchange, which matches the buyer to a seller or to a registered market maker.

The broker also custodies, or safeguards, the customer’s assets in accounts that are distinct from its own.

The SEC’s recent decision here, should they move forward with it, would greatly expand its domain of authority over the crypto market if it is able to force exchanges to comply.

It also makes things impractical for most crypto firms and blockchain projects as the strict disclosure requirements that are typically required of public companies are often beyond what these digital projects are able to provide.

As a result, the industry has already reacted to this by contacting lawmakers such as members of Congress in order to protect industry from any regulations that could negatively impact it.

The SEC had also, once again, threatened consequences for those who do not comply by citing an example of where BlockFi was charged a significant fine for failing to register its crypto lending product.

Whether the SEC will actually continue through with the enforcement with its new focus on crypto exchanges remains to be seen.

Yahoo reports:

Gensler also said the SEC is looking into how coordinate with the Commodity Futures Trading Commission to oversee crypto trading platforms where both crypto commodity tokens and crypto security tokens are traded.

Also on the docket for oversight: How to protect crypto assets held by exchanges for customers who trade on their platforms. Gensler said he’s asked SEC staff whether it would be prudent to separate out this so-called “custody” function.

The main thing that this all depends on is settling the long debated topic on whether digital assets on crypto exchanges are considered securities or not.

To conclude, the result of the SEC vs. Ripple lawsuit happening now could very much determine the how the future of the SEC’s regulatory framework within the United States unfolds.

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