Gary Gensler to "step down"? What changes might happen to SEC's crypto regulations under Trump 2.0?

Source: WilmerHale

Translation: BitpushNews Mary Liu

Given Donald Trump's campaign promise to establish a pro-crypto government, his election as president could significantly impact the cryptocurrency industry. Trump will be able to appoint a new SEC chairman who may take a different approach to crypto from the one under current chairman Gary Gensler. Under Gensler’s leadership, the SEC has filed multiple enforcement actions against members of the crypto industry, alleging violations of federal securities laws, including actions taken solely for failure to register as brokers, clearing agencies, or national securities exchanges under the Securities Exchange Act of 1934 (Exchange Act). However, the SEC has yet to propose specific rules for crypto assets, suggesting instead that existing legal and regulatory requirements can apply to crypto assets. Members of the crypto industry disagree with this approach and have reported unsuccessful attempts to engage with the SEC on crypto-related issues. However, with the appointment of a new SEC chairman, this approach may change, so members of the crypto industry should begin preparing to engage with the SEC once the new leadership is confirmed.

Under new leadership, the SEC could take several different approaches, including:

Suspending enforcement actions focused solely on registration violations: The SEC has taken several enforcement actions against cryptocurrency companies solely for violations of registration requirements under the Securities Act or the Exchange Act, without allegations of fraud or other misconduct. The new SEC leadership may pause further enforcement actions focused solely on registration violations until a clear framework is developed for regulating crypto assets and crypto asset trading intermediaries.

Issuing updated guidelines on when crypto assets are considered securities: It has been more than five years since SEC staff issued the "Framework for ‘Investment Contract’ Analysis of Digital Assets," which outlines when a digital asset may be considered an "investment contract" (and therefore a security). Since then, the crypto industry has undergone significant changes. For example, many crypto projects have matured and become more decentralized, and proof-of-stake consensus has become prevalent. However, the SEC has not issued additional guidance. The SEC could update its framework to consider the changes in the industry over the past five years and clarify why certain crypto assets (like Bitcoin and Ethereum) are not offered and sold as securities. The new guidance could also address the issue of asset-backed stablecoins, which are now one of the most prominent uses of crypto assets.

Proposing specific crypto rules: The SEC could introduce customized rules that consider the differences between crypto assets and traditional securities. To date, despite differing opinions and legal challenges from industry members, the SEC has largely refused to acknowledge these differences in its rulemaking. Instead, it has broadly applied securities rules, stating in proposed and adopted versions that they will apply to "crypto-asset securities." In some cases, these rules have been finalized due to industry concerns about their application to crypto assets and whether the SEC complies with the Administrative Procedure Act.

Using its exemption authority: The SEC could use its general exemption authority granted by Congress under Section 28 of the Securities Act and Section 36 of the Exchange Act to offer tailored relief in response to the challenges that the differences between crypto assets and traditional securities may pose to crypto market participants. The SEC could also issue additional no-action positions, declining to take enforcement action against companies engaging in certain crypto asset activities as a temporary measure until crypto-specific rules can be proposed or adopted.

Updating the special-purpose broker-dealer statement: The SEC could update its 2020 temporary no-action position to allow "special-purpose broker-dealers" to execute trading and custody functions for "digital asset securities" in a way that is more relevant to today's crypto industry, extending the current February 2026 deadline. Currently, only two registered special-purpose broker-dealers are permitted to operate, with the scope of their activities and the types of assets they are allowed to handle—such as when a crypto asset is offered and sold as a security—remaining unclear due to a lack of SEC guidance on key issues. Updates could make this guidance more effective.

Since the Republican Party controls the Senate and House, Congress may also have opportunities to pass cryptocurrency legislation. Nevertheless, the SEC may still play a role in cryptocurrency regulation. The recently passed 21st Century Financial Innovation and Technology Act and Lummis-Gillibrand Responsible Financial Innovation Act, with bipartisan support in the House, allow room for both the SEC and the Commodity Futures Trading Commission in digital asset regulation. Therefore, it is crucial for cryptocurrency market participants to consider discussing these topics with the new SEC administration. Given that Trump's campaign prioritizes cryptocurrency, the SEC may take a different approach to crypto, and market participants should be prepared to engage with the new SEC leadership to ensure their perspectives are considered.

This article is from ForesightNews:

https://foresightnews.pro/article/detail/71484

Regards from the AIC Team

2024/11/18