Crypto Industry Looks to New SEC Task Force for Quick Action in Its Favor — WSJ
By Mengqi SunMany in the cryptocurrency industry are optimistic that a new task force formed by the U.S. securities regulator will provide a road map for growth in the industry that contrasts with the regulation-by-enforcement approach under the Biden administration.The Securities and Exchange Commission, under acting Chairman Mark Uyeda, said on Jan. 21 it is launching a task force "dedicated to developing a comprehensive and clear regulatory framework for crypto assets." Republican SEC Commissioner Hester Peirce, known among crypto enthusiasts as "CryptoMom," is leading the task force. The regulator announced a few more adviser appointments to the task force on Tuesday.The formation of the task force, announced a day after President Trump's inauguration, was welcomed by the virtual currency industry, which has been eagerly awaiting moves by Trump to bring it greater legitimacy. Crypto policy advisers are already putting out proposals for what the SEC should first tackle under its existing jurisdiction and are hoping the regulator will act right away without waiting for Congress to pass legislation or confirm Trump's nominee for SEC chairman, Paul Atkins.The SEC has said the task force would set clear regulatory lines under its current jurisdiction provided by Congress, in addition to imposing enforcement actions. It would also provide paths for crypto companies to register with regulators and frameworks for what industry players would need to disclose to the government. The task force, consisting of agency staff, will also hold roundtables and solicit public input via an agency email address."There are a lot of tools that the SEC has and just hasn't been exercised in the past; this is a process that will start this conversation," said Kristin Smith, chief executive of crypto-advocacy group Blockchain Association.First stepsSmith said the agency could do several things right away that could help companies better understand the rules of the road. These include issuing more interpretive guidance on various issues, such as when staking, a method by which some crypto networks process and validate a transaction, should be considered a security by regulators. In staking, crypto investors can essentially pledge their computing power and crypto holdings to a network for a specified period in exchange for a reward.The industry could also benefit from new rule-setting with comment periods allowing the public to weigh in, she said. Also, companies could be encouraged to request so-called no-action letters to the SEC in which they can ask the agency's staff to address whether a product or service would violate securities law.The crypto industry has criticized the approach taken by the SEC over the past four years under former Chair Gary Gensler, in which the regulator relied primarily on enforcement actions to regulate crypto retroactively and adopted legal interpretations along the way, rather than proposing rules."The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better," the agency said in the statement announcing the task force.Industry responseSome crypto companies are answering the agency's call for ideas.A16z Crypto, venture-capital firm Andreessen Horowitz's crypto arm, in a blog post proposed changes that the firm says the SEC can adopt "immediately and easily" to make crypto more accessible while providing investor protections. One thing the regulator could do, the firm suggests, is to enable traditional broker-dealers to transact in the crypto space. The firm's chief compliance officer, a co-author of the blog post, said current regulations restrict broker-dealers from engaging with crypto because they require brokers to obtain separate approvals and impose more rules on those looking to provide custody for crypto assets.A16z also said the SEC should develop tailored requirements for broker-dealers to register to deal in crypto assets and establish oversight mechanisms to ensure compliance with anti-money-laundering rules. The SEC can also work with industry groups, such as the Financial Industry Regulatory Authority, to issue joint guidance on the operational risks related to crypto, the firm said.J.W. Verret, a securities law and forensic accounting professor at George Mason University who has served on the SEC investor advisory committee, hopes the SEC can also issue guidance on defining what qualifies as a security.He added that the regulator could also adopt a private offering exemption, similar to an existing exemption used often by venture-capital firms investing in Silicon Valley startups. Verret said that could be a way to implement Peirce's "safe harbor" idea of giving a grace period from certain securities law requirements to decentralized network developers. He said the proposed exemption would allow investors to back decentralized crypto projects, or those without a central company running the project.Verret is optimistic that the SEC is listening to the crypto community, even as debate over how to regulate the industry continues."The ethos of crypto is to embrace debate — that is the strength of crypto, and having these open forums at the SEC would be a great thing. It would be helpful to the SEC and to the community," he said.Write to Mengqi Sun at [email protected]