Source: WilmerHale
Original title: Trump Administration 2.0: How the SEC's Approach to Crypto Could Change
Compiled by: BitpushNews Mary Liu
introduction:
On November 14, Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC), spoke at the Bar Association’s 56th Annual Securities Regulation Conference, reflecting on his experience leading the agency’s team.
“It’s an honor to work with them, to serve the people, and to ensure our capital markets continue to be the best in the world,” he said. “I’m proud to work with my colleagues at the SEC day in and day out to protect American families in the financial markets.”
It was very much a farewell public speech. Some sources said Gensler might resign, as other SEC leaders have done in the past. However, he could also decide to remain as commissioner.
text:
Given that Donald Trump campaigned on a promise to create a pro-crypto government, his election as president could have a significant impact on the cryptocurrency industry.
Trump will be able to appoint a new SEC chair who may decide to take a different approach to cryptocurrencies than the one under current chair Gary Gensler. Under Gensler, the SEC has brought multiple enforcement actions against members of the crypto industry alleging violations of federal securities laws, including actions solely for failing to register as a broker-dealer, clearing agency, or national securities exchange under the Securities Exchange Act of 1934 (the Exchange Act). However, the SEC has not proposed a rule specific to crypto assets, but rather has suggested that current statutory and regulatory requirements could be applied to crypto assets.
Crypto industry practitioners disagree and report that their attempts to engage with the SEC on crypto-related issues have been unsuccessful. However, with the upcoming 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 a number of different approaches, including:
Suspension of Enforcement Actions Based Only on Registration Violations: The SEC has brought multiple enforcement actions against cryptocurrency companies solely for violations of the registration provisions of the Securities Act or the Exchange Act without allegations of fraud or other misconduct. The new SEC leadership may suspend further enforcement actions based solely on registration violations until a clear framework is developed for regulating crypto assets and crypto asset trading intermediaries.
Issue updated guidance on determining when crypto assets are sold as securities: It has been more than five years since the SEC staff issued its “Framework for the ‘Investment Contract’ Analysis of Digital Assets,” which describes situations in which digital assets are offered and sold as “investment contracts” (and therefore securities). Since then, the crypto industry has changed significantly. 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 the framework to take into account changes in the industry over the past five years and explain why certain crypto assets, such as Bitcoin and Ethereum, are not offered and sold as securities. New guidance could also address asset-backed stablecoins, which are now one of the most prominent uses of crypto assets.
Proposing Crypto Rules: The SEC could propose tailored rules that take into account the differences between crypto assets and traditional securities. To date, the SEC has largely refused to acknowledge the differences between crypto and traditional securities in its rulemaking, despite dissenting opinions from industry members and legal challenges. Instead, the SEC has broadly pursued securities rules and stated in proposed and adopted versions that the rules would also apply to “crypto-asset securities.” In some cases, these rules were finalized because industry members had concerns about the application of the rules to crypto assets and whether the SEC was complying with the Administrative Procedure Act.
Using its exemptions: The SEC can use the general exemptions Congress granted under Section 28 of the Securities Act13 and Section 36 of the Exchange Act14 to provide tailored relief from requirements of those acts that may present challenges to crypto market participants due to the differences between crypto assets and traditional securities. The SEC can also issue additional no-action positions, declining to bring enforcement actions against companies engaging in certain crypto asset activities as a temporary stopgap measure until crypto-specific rules can be proposed or adopted.
Update Special Purpose Broker-Dealer Statement: The SEC could update its 2020 temporary no-action position to enable “special purpose broker-dealers” to perform trading and custody functions for “digital asset securities” to make it more applicable to today’s crypto industry and extend the February 2026 deadline. Currently, there are only two registered special purpose broker-dealers, and the scope of the activities they are permitted to conduct and the assets with which they are permitted to conduct those activities remains unclear due to a lack of guidance from the SEC on key issues, such as when crypto assets are offered and sold as securities. An update could make that guidance more effective.
Congress may also have a chance to pass cryptocurrency legislation now that Republicans control both the Senate and the House of Representatives. However, even so, the SEC is likely to have a role to play in cryptocurrency regulation. The 21st Century Financial Innovation and Technology Act and the Lummis-Gillibrand Responsible Financial Innovation Act, both of which recently passed the House of Representatives with bipartisan support, have opened up space for the SEC and the Commodity Futures Trading Commission to play a role in digital asset regulation.
Therefore, it is important for cryptocurrency market participants to consider discussing these related topics with the new SEC administration. Given that Trump’s campaign has made cryptocurrency a priority, the SEC may take a different approach to cryptocurrency, and market participants should be prepared to engage with the new SEC leadership so that the industry’s perspectives are considered.
