Republican lawmakers on the US House Financial Services Committee have called on the Securities and Exchange Commission (SEC) to withdraw its proposed rulemaking regarding crypto exchanges. The lawmakers have expressed concerns over the proposed amendment that would expand the definition of “exchange” under Rule 3b-16 of the Securities Exchange Act of 1934. They have argued that the proposed rule change, if successful, could capture a wide range of individuals, including cryptocurrency software developers, blockchain consensus participants, and decentralized finance (DeFi) systems.
The lawmakers have raised questions over why these parties should be considered an exchange under securities law, adding that it is unclear how they could comply with the proposed rule change given that many do not have access to the data needed for compliance. They also warned that the proposed change would impact more of the crypto industry than the 15 to 20 platforms that the SEC believes will be designated as exchanges.
The Republican lawmakers have urged the SEC not to extend SEC Chair Gary Gensler’s views on digital assets to platforms that handle those cryptocurrencies. They have warned that the proposed change will “shoehorn” blockchain technology into old regulations instead of promoting development and customer protection.
The legislators have also raised concerns that the SEC’s planned change could “front-run” Congress’s attempts at legislation. Two House committees are working on a market structure for digital assets, and those plans are concurrently being discussed at a June 13 hearing.
The SEC’s proposed rule change has been under consideration in some form since September 2020, and Republican lawmakers are the latest to express opposition. The proposal has faced criticism from industry members, including Coinbase, and SEC Commissioner Hester Peirce objected to the proposal as it developed further in January 2022. The SEC reopened comments on the proposal in April 2023.
Republican lawmakers have urged the SEC to reconsider its proposed rulemaking on crypto exchanges. They have expressed concerns that the proposed amendment would capture a wide range of individuals and impact more of the crypto industry than the SEC believes. Additionally, the lawmakers have warned that the proposed change could “front-run” Congress’s attempts at legislation and that it would “shoehorn” blockchain technology into old regulations. The SEC’s proposed rule change has faced opposition from industry members and SEC Commissioner Hester Peirce.