SEC Faces Increasing Pressure From Lawmakers To Back Off Crypto Industry

SEC Faces Increasing Pressure From Lawmakers To Back Off Crypto Industry

There are growing calls to put an end to the oversight of the US Securities and Exchange Commission (SEC) of the crypto industry and they are coming from outside as well as inside the House.

On Thursday, the US House Financial Services Committee voted to appeal the Staff Accounting Bill 121, which has prevented banks from acting as digital assets’ custodians since March 2022.

The criticism

At the time the bill passed, the securities regulator had said that it would help in guarding against significant uncertainties and risks associated with protecting crypto assets.

However, now House Committee members are criticizing the way the SAB 121 was implemented. Rep. Mike Flood said that the SEC had not conferred with potential regulators on SAB 121.

He said that these regulators were experts in regulating the custody of banks and not consulting with them was a major oversight.

A report from the Government Accountability Office also took issue with how the SAB 121 had been enacted back in October, given that it had not submitted a report to Congress.

Moreover, it also said that the bill was being used in place of solid regulatory guidance. In the House Committee meeting, Rep. Maxine Waters also talked about the guidance.

She said that the aim had been to prevent custodians from mishandling crypto assets to protect investors, something that had led to the collapse of the FTX crypto exchange.

SEC’s enforcement mode

In fact, the week also saw eleven US attorneys general file a joint amicus brief in the lawsuit of the SEC against the parent company of crypto exchange Kraken, Payward Ventures.

It was filed to challenge the authority of the SEC over crypto companies. The attorneys said that the enforcement actions of the SEC exceeded its delegated authority.

They said that crypto assets should not be categorized as securities because there is no investment contract.

They said that the use of this undelegated authority by the SEC puts state consumers at risk because they preempt state statutes designed to address the risks of non-securities products.

More details

Attorney generals from Texas, South Dakota, Nebraska, Mississippi, Arkansas, Ohio, Iowa, and Montana submitted the brief.

Hester Pierce, the SEC Commissioner, talked during an event and said that the SEC was only focused on enforcement currently.

She said that this had put developers in a fix because they were worried about how to build new technology to protect them from regulators.

She said that they were spending part of their brainpower to figure out how to avoid getting sued by the regulator.

She went on to say that having clearer rules would enable developers to focus on building and not having to worry.

After the collapse of the FTX crypto exchange, the SEC received a lot of criticism for not taking action against the exchange.

Since then, the securities regulator has taken an enforcement approach towards the crypto industry and this has garnered a lot of criticism.