Source: WilmerHale
Compiled by: Bit BitpushNews Mary Liu
Introduction:
On November 14, Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), delivered a speech at the 56th Annual Securities Regulation Institute Conference of the Practicing Law Institute, reflecting on his experience leading the agency's team.
He said: "It has been an honor to work with them, to serve the people, and to ensure our capital markets remain the best in the world...I am proud to have worked alongside my SEC colleagues day in and day out to protect America's households in the financial markets."
This sounded like a farewell speech. Some sources suggest that Gensler may resign, as other past SEC leaders have done. However, he may also decide to continue serving as the Commissioner.
Main Text:
Given that Donald Trump promised to establish a pro-cryptocurrency government during his campaign, 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 current Chair, Gary Gensler. Under Gensler's leadership, the SEC has brought multiple enforcement actions against crypto industry participants, alleging violations of federal securities laws, including actions taken 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 yet proposed rules specific to crypto assets, but has suggested that current legal and regulatory requirements can apply to crypto assets.
Crypto industry participants have disagreed with this approach and reported that their attempts to engage with the SEC on crypto-related issues have not been successful. However, with a new SEC Chair soon to be appointed, this approach may change, and crypto industry members should start preparing to engage with the new leadership.
Under new leadership, the SEC could take various different approaches, including:
Suspending enforcement actions solely for registration violations: The SEC has brought multiple enforcement actions against cryptocurrency companies, targeting only violations of registration requirements under the securities laws or the Exchange Act, without allegations of fraud or other misconduct. The new SEC leadership may suspend further enforcement actions solely for registration violations until a clear framework is developed to regulate crypto assets and crypto asset intermediaries.
Issuing updated guidance on when crypto assets are sold as securities: It has been over five years since the SEC staff issued the "Framework for 'Investment Contract' Analysis of Digital Assets," which described the circumstances under which digital assets are offered and sold as "investment contracts" (and therefore securities). Since then, the crypto industry has undergone significant changes, such as the maturation and increased decentralization of many crypto projects, and the widespread adoption of proof-of-stake consensus. However, the SEC has not issued additional guidance. The SEC could update the framework to consider the industry's changes over the past five years and explain why certain crypto assets (such as Bit and ETH) 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 use cases for crypto assets.
Proposing crypto-specific rules: The SEC could propose tailored rules that consider the differences between crypto assets and traditional securities. To date, while industry participants have had differing views and legal challenges, the SEC has largely refused to acknowledge the differences between crypto and traditional securities in its rulemaking. Instead, the SEC has broadly applied securities rules and indicated in the proposed and adopted versions that these rules will also apply to "crypto asset securities." In some cases, these rules have ultimately been finalized due to industry participants' concerns about the application of these rules to crypto assets and whether the SEC has complied with the Administrative Procedure Act.
Utilizing its exemptive authority: The SEC could utilize the general exemptive authority granted to it by Congress under Section 28 of the Securities Act and Section 36 of the Exchange Act to provide tailored relief from requirements that may pose challenges for crypto market participants due to the differences between crypto assets and traditional securities. The SEC could also issue additional no-action positions, declining to take enforcement action against companies engaged in certain crypto asset activities, as a temporary stopgap 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 enable "special purpose broker-dealers" to perform trading and custody functions for "digital asset securities," making it more applicable to today's crypto industry and extending the February 2026 deadline. Currently, only two registered special purpose broker-dealers exist, and the scope of activities they are permitted to engage in, as well as the assets they are permitted to work with, remains unclear due to the SEC's lack of guidance on key issues, such as when crypto assets are offered and sold as securities. An update could make this guidance more effective.
While the Republican-controlled Senate and House may also have an opportunity to pass cryptocurrency legislation, the SEC could still play a role in crypto regulation. The recently House-passed "21st Century Financial Technology and Innovation Act" and the "Lummis-Gillibrand Responsible Financial Innovation Act," both with bipartisan support, carve out space for the SEC and the Commodity Futures Trading Commission in digital asset regulation.
Therefore, it is crucial for cryptocurrency market participants to consider engaging with the new SEC administration on these relevant topics, as the SEC may take a different approach to cryptocurrencies given Trump's campaign focus on crypto, and market participants should be prepared to engage with the new SEC leadership to ensure the industry's perspectives are considered.
