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SEC’s Gensler Tells Coinbase Current Regime is “Adequate”: Will There Ever Be Clarity?

Last Updated December 18, 2023 12:20 PM
Josh Adams
Last Updated December 18, 2023 12:20 PM

ns Key Takeaways

  • Gary Gensler’s SEC has denied Coinbase’s petition for new crypto rules.
  • The SEC chair has said existing rules are fit for purpose.
  • Two dissenting Commissioners said more listening could and should be done.

The United States Securities and Exchange Commission (SEC) voted 3-2 on Friday, December 15, to deny crypto exchange Coinbase’s petition urging the regulator to propose new rules for digital assets. 

This news comes as a blow to the crypto industry in general.

SEC Chair Gary Gensler defended the decision, arguing that existing laws and regulations already apply to crypto securities.

Industry Asks for Clarity, SEC Says it’s There

The ruling represents a setback for Coinbase and the wider crypto industry’s push for regulatory clarity. In a statement , Coinbase chief legal officer Paul Grewal said the exchange disagrees with the notion that current laws provide enough guidance and promised to challenge the SEC’s denial in court.

He said: “No one looking fairly at our industry thinks the law is clear or that there isn’t more work to do.

“We should be working together to create laws and rules that will benefit consumers and US innovation.”

True to his word, Coinbase notified a federal appeals court in Philadelphia later on Friday of its intent to seek a judicial review of the SEC’s decision, calling it “arbitrary and capricious” and an “abuse of discretion.”

The back-and-forth reflects escalating tensions between crypto firms and the SEC, which has taken an aggressive stance that most digital assets qualify as securities subject to its regulation. Last year, Coinbase asked the SEC to propose new regulations tailored specifically to crypto assets. It argued that traditional securities laws were “unworkable”.

Coinbase will stay in US

The exchange, which is the world’s second-largest, is one of the few big operations with plans to stay in the United States. It is also one of the few publicly-traded crypto firms. This gives its voice on industry matters an added legitimacy.

But in his statement supporting Friday’s ruling, Gensler maintained current laws provide adequate investor protections. He pointed to Supreme Court precedents defining securities as “investment contracts” based on the economic reality of transactions rather than superficial labels. He noted federal courts applied these longstanding standards to determine which crypto assets qualify as securities.

Gensler said: “I disagree with the petition’s assertion that it is not feasible to identify an “issuer” of crypto asset securities. An issuer need not be a formal company issuing stock; it also includes a person or entity that organizes or sponsors the organization that is investing funds in an enterprise for profit.”

Gensler also emphasized the importance of registration and compliance for crypto intermediaries like exchanges and broker-dealers. Though the petition suggests intermediaries are not required to follow securities regulations when facilitating crypto transactions, Gensler observed Coinbase itself acts as an intermediary on its platform.

Gensler Successor Could Opt for Change

Perhaps most crucially, the SEC chair defended the agency’s discretion over its own rulemaking agenda. They emphasized its ability to carry out “discretionary rulemaking like that requested by the Petitioner.” Gensler said it was vital the SEC focused on areas most in need of updated investor protections. After all, crypto still represents a minor fraction of the broader $110 trillion-plus capital markets.

Gensler, previously the chair of the Commodities and Futures Trading Commission (CFTC), took over at the SEC in 2021. That puts Gensler on course to be in the role until 2026. However, if a Republican, were to become president in 2024, his legacy at the SEC could be under threat.

An industry favorite to take over, and a consistently pro-crypto voice on the Commission is former lawyer and Donald Trump appointee Hester Peirce. In their recent dissenting opinion , Peirce and her fellow Commissioner Mark T. Uyeda said addressing the issues of new technology was a “core part of being a responsible regulator.”

They said: “We hope that interested persons continue to posit specific rule changes, guidance, and exemptions that would form a useful basis for the crypto industry to continue its development within the United States.”

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