The U.S. Securities and Exchange Commission's broker-dealer regulations, which expanded the definition of "broker-dealer" to include all liquidity providers and automated market makers controlling over $50 million in Capital, have been struck down by a judge.
According to U.S. District Judge Reed O'Connor, "The Court concludes that the SEC exceeded its statutory authority in promulgating an overbroad definition of 'broker-dealer' that is inconsistent with the text, history, and structure of the Exchange Act."
Marisa Tashman Coppel, head of legal at the Blockchain Association crypto advocacy group, called this a "major victory" for the nascent Cryptocurrency industry.
While gaining the legal advantage, the SEC still has the opportunity to appeal the ruling to the 5th Circuit Court of Appeals and attempt to push through new broker-dealer regulations once again.
Ruling overturning SEC's broker-dealer regulations. Source: Marisa Tashman Coppel
Infamous Broker-Dealer Regulations Shake Up Cryptocurrency Industry
The SEC had adopted changes to the broker-dealer regulations on February 6, 2024, expanding the definitions of "broker-dealer" and "government securities dealer" under existing securities laws.
This change imposed significant and often unenforceable regulatory requirements on many Cryptocurrency projects — particularly decentralized networks without a central authority and unable to enforce "Know Your Customer" or anti-money laundering rules.
As a result, the regulatory change faced harsh criticism from executives, investors, lawmakers, and even SEC Commissioners like Mark Uyeda.
"Today's action reinforces the Commission's view that the 'broker-dealer' definition is virtually limitless. The public should be concerned about the vast scope of this authority," Uyeda commented.
SEC Commissioner Hester Peirce — affectionately known as "Crypto Mom" for her pro-Cryptocurrency views — also criticized the broker-dealer definition change and asserted that the SEC had overstepped its bounds in attempting to regulate decentralized protocols.
In April, Cryptocurrency industry advocacy groups surpassed the criticism point and sued the SEC over this regulatory change. The lawsuit, brought by the Blockchain Association and Crypto Freedom Alliance of Texas, accused the SEC of overreach and stifling innovation in the U.S.
