The U.S. Securities and Exchange Commission (SEC) has recently come under intense scrutiny from lawmakers and industry leaders for its handling of cryptocurrency regulation, raising questions about whether the agency is overstepping its authority in its efforts to rein in the industry. On Wednesday, Representatives French Hill (R-Ark.) and Dusty Johnson (RS.D.), two prominent Republican members of the U.S. House of Representatives, expressed concern about the SEC’s approach in a letter to the body’s chairman, Gary Gensler.
“While Congress works to close regulatory loopholes, the SEC has chosen to regulate through enforcement,” the letter said. “In fact, Republicans on the Financial Services Committee have sent numerous letters to the SEC expressing concern about various proposed regulations and staff actions. This approach does not ensure compliance and customer protection, but instead creates further confusion, as evidenced by the recent summary judgment.”
Lawmakers further expressed their belief that the regulator’s actions were “apparently timed” to overshadow and potentially derail efforts to enact comprehensive crypto legislation. Hill and Johnson argue that the confusion fueled by the SEC’s current approach is evidenced by the recent legal battle between Ripple Labs and the SEC. Ripple’s partial victory in that case has further emphasized the need for clear regulatory guidance on crypto, according to the SEC’s critics.
The fact that the SEC’s lawsuits against leading crypto exchanges, Binance and Coinbase, were filed shortly after Republican chairmen of two House committees unveiled a draft discussion on reviewing US crypto regulations may be what lawmakers are alluding to by citing the timing in their letter. With two bills introduced since 2021 and 15 hearings in the past four years, Hill and Johnson believe that a legislative framework would be more effective in preventing future crypto collapses than sporadic enforcement actions that only seek to punish after the fact.
Criticism from both sides of the aisle
However, the SEC has drawn skepticism on both sides of the political aisle, with New York Democrat Ritchie Torres also criticizing the SEC in a open letter to Gary Gensler on July 18. In it, he praised Judge Annalisa Torres for her scrupulous application of the Howey test, a legal standard used to identify securities, in the court ruling on the SEC’s lawsuit against Ripple Labs. Congressman Torres believes the agency has been inconsistent in its application of the Howey test in general.
Torres further commented on the “Torres Doctrine,” a term he coined to describe the precedent set by the judge’s ruling, arguing that the SEC’s legal basis for its lawsuit against Coinbase has been significantly weakened, especially given the regulator’s classification of other major crypto assets as securities.
During a July 13 pre-motion hearing in the Coinbase case, District Judge Katherine Polka Failla also expressed skepticism and confusion over the SEC’s 2021 approval of the exchange’s S-1 filing with the SEC, allowing the crypto exchange to go public on NASDAQ.
Editor’s Note: This article was written by an nft now contributor in collaboration with OpenAI’s GPT-4.