The U.S. Securities and Exchange Commission (SEC) has responded to Coinbase's petition by stating that the request for the development of rules is "unjustified." However, it is important to note that not all members of the Commission agreed with this decision. Two out of five members believe that the agency should participate in active public discussions to address the issues raised in the petition.
In a letter to Coinbase's Chief Legal Officer, Paul Grewal, the SEC emphasized that existing securities laws are applicable to cryptocurrencies. The Commission stated that the requested rulemaking would significantly limit its ability to prioritize competing priorities.
"The Commission has carefully considered this recommendation, as well as the petition and comment letters. After such consideration and within its broad discretion to set its regulatory agenda, the Commission concludes that the requested rulemaking is currently unjustified and denies the petition."the excerpt from the letter reads.
SEC Chairman #Gary Gensler supported the Commission's response to Coinbase's petition, citing three reasons why he is satisfied with the denial.
According to Gensler, existing securities laws are applicable to cryptocurrencies. He added that the Howey test, which the agency typically applies in various enforcement actions, has been "flexible" and "able to adapt to satisfy countless and diverse schemes devised by those seeking to use other people's money for promised profits."
"Therefore, to the extent that crypto assets are offered and sold in the form of investment contracts, and to the extent that intermediaries engage in broker-dealer activities with crypto securities, federal securities laws apply"Gensler stated.
Furthermore, the SEC Chairman emphasized that the Commission has the discretion to prioritize and allocate its resources. Gensler noted that the cryptocurrency market represents a small percentage of the multi-trillion-dollar capital markets.
"While there is excessive fraud, abuse, and non-compliance in the cryptocurrency market relative to its size, it nonetheless represents a small portion of the capital markets with over $110 trillion in turnover. It is important for the Commission to retain the discretion to focus its attention on those parts of the capital markets that require updated regulation"Gensler explained.
However, SEC Commissioners Hester Peirce and Mark Uyeda disagreed with the agency's decision. In a statement responding to the SEC's denial, Peirce and Uyeda noted that it is important for the SEC to engage in dialogue with market participants and other stakeholders to address the issues raised in the petition for rulemaking.
Paul Grewal from Coinbase also expressed dissatisfaction with the Commission's response, stating, "No one looking objectively at our industry thinks the law is clear or that there is nothing more to be done." Meanwhile, Grewal announced that the cryptocurrency exchange will appeal the "SEC's abdication of its responsibilities" to the Third Circuit.
In July 2022, the American cryptocurrency exchange filed a petition for rulemaking, requesting the SEC to provide a clearer regulatory policy for the industry. However, the main U.S. regulator did not respond to the petition until Coinbase filed a court order in April 2023, compelling the agency to provide a response. Grewal speculated at the time that the SEC might reject the petition for rulemaking.
Meanwhile, #Coinbase is engaged in a legal battle with the #SEC after the agency accused the cryptocurrency company of operating an unregistered exchange and listing assets on its platform that are considered securities.
