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Ripple, Coinbase Legal Chiefs Challenge SEC and Yellen’s Contradictory Crypto Remarks

Last Updated February 10, 2024 7:15 AM
Teuta Franjkovic
Last Updated February 10, 2024 7:15 AM

Key Takeaways

  • Ripple & Coinbase challenge lack of clear oversight, advocate for “FIT21” framework.
  • The SEC has downplayed crypto importance while Yellen pushes for legislation, creating confusion.
  • House leaders ask Yellen about FSOC’s role in coordinating crypto regulation, seeking clarity by February 20th.

Ripple and Coinbase Legal Chiefs have recently questioned Treasury Secretary Janet Yellen about the oversight deficiencies in the cryptocurrency sector.

Under Yellen’s leadership, the Financial Stability Oversight Council (FSOC) has issued multiple alerts regarding the insufficient regulatory framework surrounding digital asset markets.

Conflicting Statements Fuel Debate on Crypto Regulation

Stuart Alderoty, the Chief Legal Officer at Ripple Labs, recently highlighted  a significant contradiction in the ongoing debate over cryptocurrency regulation. He pointed out  that in the legal battle between Coinbase and the SEC, the SEC argued that cryptocurrency is merely a “rounding error” and insisted that no legislative gaps exist, thus claiming crypto falls within its regulatory authority.

Secretary Janet Yellen recently called for a crypto crackdown, telling Congress that new crypto legislation is essential to address regulatory gaps. These conflicting statements, according to Alderoty, cannot simultaneously hold, indicating a disconnect in the government’s stance on crypto regulation.

Echoing Alderoty’s concerns, Coinbase’s Chief Legal Officer, Paul Grewal, supported  the assertion that recent comments from Secretary Yellen, and figures like Senator Cynthia Lummis, debunk the notion that cryptocurrency regulation does not require Congressional intervention.

Grewal stressed  the existence of a “contemporaneous, more bipartisan record” on the matter, underscoring the growing consensus that cryptocurrency regulation is indeed a major issue that demands legislative attention from Congress, rather than being unilaterally decided by regulatory bodies.

CCN spoke with Liz Boison a partner at global law firm Hogan Lovells and a founding member of the U.S. Department of Justice’s (DOJ) National Cryptocurrency Enforcement Team.

She elaborated on the underlying tensions, highlighting several key forces at play. First, there’s a general consensus that the Howey test, a legal framework used to determine whether certain transactions qualify as investment contracts, falls short in adequately addressing potential consumer harm within the realm of cryptocurrencies and related assets.

Additionally, she pointed out the SEC’s persistent use of the Howey test to pursue legal action against entities striving to comply with regulations and promote responsible practices. Lastly, she noted the lack of momentum in Congress towards enacting comprehensive legislation tailored to the complexities of the digital asset landscape.

Boison concluded:

“Consensus is starting to build around the concept that not all tokens are necessarily “investment contracts,” and a group of executive branch or independent agencies needs to take the mantle and propose draft legislation to Congress for change to come.”

FIT21 Seeks Stable Future for Crypto Under Regulatory Umbrella

The concerns regarding Treasury Secretary Janet Yellen’s approach to cryptocurrency legislation extend beyond Stuart Alderoty and Paul Grewal. Representatives Patrick McHenry, Glenn Thompson, French Hill, and Dusty Johnson expressed their apprehensions through a letter  addressed to Yellen. This correspondence was sent on Tuesday, directly following her appearance before the House Committee on Financial Services, highlighting the growing unease among lawmakers about the direction of crypto regulation under Yellen’s guidance.

Lawmakers inquired about the FSOC’s perspective  on how current legislation should be applied to Bitcoin, Ether, and other non-security digital assets, highlighting the council’s ongoing concerns about the regulatory vacuum in the rapidly evolving cryptocurrency landscape.

Following the collapse of the cryptocurrency exchange FTX, Representatives McHenry, Thompson, Hill, and Johnson—all chairs of key House Committees and Subcommittees related to financial services, agriculture, digital assets, and rural development—sent a letter highlighting  the bipartisan legislative efforts underway to enhance regulatory oversight over digital asset markets.

This initiative, known as the Financial Innovation and Technology Act for the 21st Century (FIT21), aims to grant federal regulators explicit authority over digital asset spot markets and extend existing financial customer protections to digital asset intermediaries and activities, marking a significant step towards integrating digital assets within the established regulatory framework.

Lawmakers Scrutinize Coordination for Non-Security Crypto Regulation

The lawmakers emphasized  that the FSOC, chaired by Yellen, has consistently issued warnings about the oversight deficiencies in digital asset markets. They noted  that the FSOC has highlighted the same regulatory gaps their proposed legislation aims to bridge, underlining the alignment between the council’s concerns and the objectives of their legislative efforts.

They asserted :

“To highlight the gaps, bitcoin and ether have not been recognized as securities … Because these underlying assets are not securities, neither the CFTC nor SEC has the authority to register and regulate trading platforms or other intermediaries engaged in spot transactions in both of these digital assets.”

In their correspondence, the lawmakers posed questions to Treasury Secretary Janet Yellen to gain clarity on how the FSOC, is enhancing coordination and communication between the SEC and the CFTC concerning the federal oversight of non-security digital asset spot markets. The letter explicitly requests Yellen’s response by no later than February 20th, indicating a pressing interest in understanding the FSOC’s role in navigating the regulatory landscape of digital assets.

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