Robinhood’s Chief Legal Officer Blasts SEC’s ‘Scorched Earth’ Approach to Crypto

• The Chief Legal of Robinhood criticized the SEC’s approach to regulating cryptocurrencies.
• Gallagher advocates for a comprehensive regulatory framework to provide clarity and certainty for the digital asset industry.
• Robinhood has faced challenges with the SEC, including its attempt to register as a digital asset broker-dealer.

Daniel M. Gallagher, Chief Legal, Compliance, and Corporate Affairs Officer of Robinhood, testified  before the U.S. House of Representatives House Financial Services on Wednesday, Sept. 18, 2024.

He strongly criticized the U.S. Securities and Exchange Commission’s (SEC) ‘scorched earth’ approach to the crypto industry and called for clearer regulatory frameworks.

Gallagher’s Testimony

Former SEC commissioner Gallagher lambasted the agency for its failure to provide clear guidelines on digital assets, instead relying on enforcement actions that harm American consumers and stifle innovation.

Testifying before a Congressional committee, Gallagher argued that the SEC’s lack of clarity has created an “innovation-killing” environment, leaving firms like Robinhood uncertain about how to navigate the regulatory landscape.

The Robinhood CLO suggested that the SEC should focus on creating a clear and comprehensive regulatory framework for digital assets.

He recommended that the agency use its authority under Section 36 of the Exchange Act  to establish a provisional regulatory regime, which would provide much-needed clarity and allow firms to register and innovate in the meantime.

“For too long, the U.S. digital asset markets and millions of Americans who wish to participate in them have had to contend with innovation-killing federal regulatory uncertainty. This uncertainty is particularly acute in the context of determining which digital assets the SEC deems to be investment contracts requiring SEC registration and how tokens and platforms can become registered with the Commission. Instead of providing regulatory certainty through appropriate rulemaking, the SEC has engaged in regulation by enforcement,” Gallagher wrote.

SEC ‘Scorched Earth’ Approach To Crypto

Gallagher also emphasized the importance of a clear regulatory framework for the digital asset industry. He believes it would benefit American consumers, foster innovation, and ensure the U.S. remains a global leader in this space.

“The current Commission’s scorched earth approach to regulating cryptocurrency has real-world consequences,” the legal officer said.

Gallagher added that regulation by enforcement is bad for American consumers who want greater access to digital assets, bad for innovation in the blockchain and digital asset industries, and bad for the U.S.’s already-eroding competitive position in digital asset markets.

“Because the Commission has taken a rigid, hostile approach to cryptocurrency and refused to provide regulatory clarity, U.S. customers have suffered as innovation has moved overseas.” Gallagher expressed.

The Robinhood CLO asserted that, unlike the U.S., many international jurisdictions are doing exactly what their crypto industry has requested for years: “providing regulatory clarity by enacting cryptocurrency-specific regulatory regimes.”

Robinhood vs. SEC

Robinhood has faced its own share of challenges with the SEC. The company’s bid to register as a digital asset broker-dealer has been met with delays and a lack of clear guidance from the regulatory agency.