SEC Rejects Coinbase's Call for Cryptocurrency Regulations, Deeming It 'Unwarranted'

The formal request made by Coinbase, a leading U.S. cryptocurrency exchange, for specific regulations within the crypto industry has been officially rejected by the U.S. Securities and Exchange Commission (SEC). Having eagerly anticipated a response since 2022, Coinbase's pursuit of tailored regulations faced a setback after the company explored legal avenues to expedite the process.

In a statement accompanying the denial, Gary Gensler, the SEC Chair, asserted that the current securities framework is sufficient to govern crypto asset securities. Gensler argued that the SEC already holds substantial authority within existing laws and has actively proposed regulations to directly oversee crypto businesses. Furthermore, the SEC's enforcement division has been addressing misconduct in the crypto space using its existing capabilities.

Gensler emphasized the significance of allowing the commission discretion in determining its rulemaking priorities, forming a third argument. Coinbase's initial pressure in 2022 led to a lawsuit from the SEC for operating as an unregistered securities exchange. Subsequently, the exchange sought a court order to compel a response from the SEC, culminating in the recently received denial.

In a two-page response, the five-member commission contradicted Coinbase's claim that applying current securities statutes and regulations to crypto assets is impractical. The SEC concluded that the requested rulemaking is presently unnecessary and dismissed the petition.

Expressing dissatisfaction with the SEC's decision, Coinbase's Chief Legal Officer, Paul Grewal, announced the company's intention to contest the ruling in court, deeming it an "abdication of its duty." Grewal underscored the industry's need for clearer regulations, highlighting the ongoing efforts to define legal frameworks.

Two SEC commissioners, Hester Peirce and Mark Uyeda, opposed the denial, expressing optimism that stakeholders would continue suggesting rule changes, guidance, and exemptions to facilitate meaningful discussions about the U.S. crypto industry's evolution.

Grewal acknowledged the dissenting commissioners, expressing gratitude for their disagreement with the denial and their call for genuine dialogue. He stressed the importance of collaborative endeavors to formulate laws and rules beneficial to consumers and supportive of U.S. innovation, advocating against engaging in legal disputes over evolving legal positions.

A footnote in Gensler's statement underscored that Coinbase's petition implicitly acknowledges the SEC's authority over "digital asset securities." Gensler also referenced a crypto broker, without specifying Prometheum Inc., utilizing a unique digital assets registration, suggesting the feasibility of this compliance method.

While the SEC remains resistant to tailored regulations in the securities sector, crypto lobbyists in Washington continue to advocate for a more comprehensive and industry-specific regulatory framework in the U.S. Legislative efforts in Congress have made some headway this year but await finalization. The Financial Stability Oversight Council, with the SEC chairman as a member, recently emphasized in its annual report the necessity for congressional intervention to regulate the crypto industry.

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