US Lawmakers Pile Pressure on SEC to Change Its Approach to Crypto Regulation

Updated: 20 July 2023

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Congress vs SEC

Pressure on Securities and Exchange Commission Chair Gary Gensler to rethink his approach to crypto regulation intensified Wednesday when two prominent Republicans became the latest politicians to lambast his regulation-by-enforcement strategy.

French Hill and Dusty Johnson wrote to Gensler to stress the need to establish a regulatory framework, saying that would ensure the US retains innovation and growth in crypto markets.

I sent a letter alongside @RepDustyJohnson to @GaryGensler stressing the importance of productive engagement with @SECGov on our actions in Congress to regulate #DigitalAssets and establish clear rules of the road for all market participants.

Read our full letter, below: pic.twitter.com/pKoFuxVe2L

— French Hill (@RepFrenchHill) July 19, 2023

“The SEC has opted to regulate by enforcement,” the Republicans wrote. “This approach does not protect the public. Legislation would do far more to prevent future collapses of digital asset firms than enforcement actions. A statutory framework would establish a process for firms to come into the regulatory parameter and comply with consumer protections, rather than relying on enforcement actions to punish a bad actor after the damage has already been done.”

The letter is the latest to take the SEC to task for what some see as the SEC’s heavy-handed approach to regulation, one they see as damaging the US crypto ecosystem.

Democrat Ritchie Torres wrote letters last week and again this week to criticize the SEC’s approach, calling it “haphazard and heavy-handed.”

Torres also called for an investigation into the special purpose broker-dealer license that was awarded to Prometheum, “a trading digital assets platform that does not trade digital assets.’’ He said that the SEC was “politicizing” the process of registering a trading platform.

SEC Asked to Establish Clarity

Torres asked the SEC to establish clarity in the registration process, which he called a “bridge to nowhere.” He also wrote another letter referencing the SEC vs Ripple case and the ruling passed by Judge Analisa Torres.

Torres last week gave a landmark partial victory to Ripple Labs., Inc. after the SEC took legal action against the company, arguing that Ripple’s payments token was a security. But the judge ruled that the token, XRP, is not a security when sold to the public via exchanges even though is when sold to institutional investors. Crypto assets surged on the ruling.

Gensler, has filed a flurry of enforcement actions in recent months against crypto titans that include the Nasdaq-listed exchange Coinbase and Binance, the world’s largest cryptocurrency exchange. The critics say the SEC’s heavy-handed approach is stifling innovation in the industry in the US and risks major crypto companies and jobs decamping to more crypto-friendly jurisdictions such as Singapore, Switzerland and Portugal.

Torres on Tuesday urged the SEC to halt the “crusade” against companies in the crypto industry and praised his namesake’s ruling.

“I hope that the SEC will find itself so chastened by the court’s decision that it will concentrate the Commission’s enforcement energies where it belongs: on the bonafide bad actors who perpetrate serious transgressions like fraud, market manipulation, and the misappropriation of customer funds,” he said.

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