U.S. SEC Rejects Coinbase’s Call For Crypto Regulations Deeming It “Unjustified

After formally requesting the agency to initiate drafting extensive crypto regulations, the SEC declined after ‘careful’ deliberation.

Since 2022, Coinbase anticipated a response from the Securities and Exchange Commission regarding its formal plea for specific crypto regulations. Even resorting to legal action to prompt a reply, the long-awaited rejection has finally come.

The SEC contends there’s no need for a fresh crypto framework, citing ongoing work on focused crypto rules and enforcement actions within current jurisdiction. However, two of the five commissioners expressed dissent.

Coinbase intends to escalate the issue by returning to court for further resolution.

Gensler also emphasized another point, stating that “maintaining the commission’s discretion in establishing its rulemaking priorities is crucial.”

In 2022, Coinbase applied formal pressure before facing an SEC lawsuit as an unregistered securities exchange. Seeking a response from the agency, the company resorted to a federal court, and the awaited response has now arrived.

The five-member commission, in a two-page response, disagreed with the petition’s claim that applying existing securities laws to crypto asset securities and related entities is impractical. After careful consideration, the commission deemed the requested rulemaking unnecessary and denied the petition.

Paul Grewal, Coinbase’s Chief Legal Officer, announced the company’s intent to escalate the challenge in court, labeling the SEC’s decision as a failure to fulfill its responsibilities.

Grewal remarked in a statement, “No unbiased observer in our industry believes that the law is unequivocal or that there isn’t additional groundwork to cover.”

Commissioners Hester Peirce and Mark Uyeda dissented against the SEC’s rejection.

Grewal expressed gratitude that two commissioners dissented and urged for meaningful discussions instead.

“Our focus should be collaborative efforts in crafting regulations benefiting consumers and fostering U.S. innovation, not engaging in legal battles over constantly shifting legal stances,” he emphasized.

Gensler’s statement included a footnote highlighting that Coinbase’s petition repeatedly mentions “digital asset securities” and the SEC’s oversight, acknowledging crypto assets’ potential classification as securities under SEC scrutiny.

Gensler indirectly referenced a crypto broker, hinting at a viable compliance approach through a special digital assets registration, though not explicitly mentioning Prometheum Inc.

Lobbyists in Washington advocating for comprehensive industry-specific regulations in the U.S. have prioritized this goal within the crypto sphere. Congressional efforts this year have shown advancement but fell short of finalization. While the SEC resists tailored securities rules, the broader Financial Stability Oversight Council, chaired by the SEC’s leader, conveyed in its recent annual report that crypto regulation necessitates Congress’s intervention.

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