TLDR
- Acting SEC Chairman Mark Uyeda has directed staff to abandon a 2022 proposal that would require crypto firms to register as alternative trading systems
- The original proposal was criticized for linking Treasury market regulation with crypto oversight
- Industry stakeholders argued the expanded definition of “exchange” unfairly applied to decentralized blockchain systems
- This policy change aligns with a broader shift in the SEC’s regulatory approach toward digital assets under new leadership
- The SEC has recently made other crypto-friendly changes, including rescinding accounting guidance and dropping enforcement actions
The acting chief of the U.S. Securities and Exchange Commission (SEC), Mark Uyeda, announced on March 10 that he has directed staff to look at ways to abandon a controversial 2022 proposal. This plan would have required some cryptocurrency firms to register as alternative trading systems (ATS).
The announcement came during Uyeda’s address to an audience of bankers at the Institute of International Bankers’ Annual Washington Conference. He stated that linking Treasury market regulation with crypto oversight was “a mistake.”
“In my view, it was a mistake for the Commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market,” Uyeda said in his prepared remarks. The 2022 proposal was part of a broader effort under previous Democratic leadership.
The original proposal aimed to widen the definition of alternative trading systems. It would have brought various cryptocurrency protocols under SEC oversight without clear justification, according to critics.
Uyeda has asked SEC staff for options on abandoning the crypto-related portion of the proposal. He cited “significant negative public comment” as a factor in this decision.
The 2022 proposal expanded an earlier effort focused on trading in Treasury markets. Uyeda has now asked staff to renew discussions with the Treasury Department, Federal Reserve, and market participants about the original plans.
Stakeholders strongly opposed the proposal
Industry stakeholders strongly opposed the proposal when it was introduced. They argued it represented regulatory overreach and failed to account for the unique technological aspects of blockchain systems.
ConsenSys, a leading blockchain software firm, formally opposed the proposal. They described it as legally flawed and technologically misguided, stating it would subject blockchain systems to impossible compliance burdens.
Coinbase’s Chief Legal Officer Paul Grewal called the proposal “irrational.” He criticized the SEC for failing to collect basic information about decentralized exchanges (DEXs) before moving forward with the proposal.
Even within the SEC, the proposal faced opposition. Commissioner Hester Peirce criticized its complexity and extensive scope, noting the document was 650 pages long with over 220 comment requests.
Peirce questioned whether such a wide-ranging proposal allowed for proper evaluation. The proposal introduced a new definition of “exchange” that included “communications protocols” without clearly defining the term.
This policy reversal comes amid broader changes in the SEC’s approach to cryptocurrency regulation. Under Republican leadership, the SEC in January launched a crypto task force to overhaul its policy.
Agency Has Started Suspending or Dropping Pending Lawsuits
The agency has begun pausing or dismissing pending lawsuits against crypto firms. They have also rescinded controversial accounting guidance that affected the industry.
Uyeda’s actions signal a shift toward developing future crypto regulations with more industry input. This suggests upcoming regulatory efforts may be shaped by a more nuanced understanding of blockchain technology.
The SEC’s changing stance has been welcomed by many in the cryptocurrency industry. They see it as a recognition of the need for tailored regulations that account for the unique aspects of digital asset markets.
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