The U.S. Securities and Exchange Commission (SEC) is considering abandoning a controversial rule that expanded the definition of exchanges to include crypto firms. Acting SEC Chairman Mark Uyeda has called for a reassessment of the regulation, signaling a potential shift in the agency’s approach to crypto oversight.
Background on the Rule Expansion
The regulation in question was originally introduced in 2020 to enhance oversight of Alternative Trading Systems (ATSs), particularly those dealing with government securities. However, under former SEC Chair Gary Gensler, the rule was broadened to encompass crypto platforms, a move that was widely criticized by industry participants.
Speaking at the Institute of International Bankers’ Washington Conference on March 10, Uyeda acknowledged that this expansion was a mistake. He explained that while the rule was initially aimed at increasing transparency in government securities markets, Gensler’s SEC took it in a “very different direction.”
Concerns Over Vague Wording and Crypto Oversight
One of the key issues with the 2022 iteration of the rule was its ambiguous wording, particularly the inclusion of “communications protocols” without a clear definition. This broad language raised concerns that a wide range of crypto-related platforms could be forced to register as exchanges, even if they primarily functioned as decentralized networks or communication protocols.
Uyeda criticized the SEC’s approach, stating that it was a “mistake” to link Treasury market regulations with what he described as a “heavy-handed attempt to tamp down the crypto market.” He also noted that public feedback on the expanded exchange definition was overwhelmingly negative, reinforcing the need for a reassessment.
Regulatory Rollbacks and Shift in SEC Approach
Uyeda has directed SEC staff to explore options for abandoning the crypto-related provisions of the rule while maintaining its original focus on Government Securities ATSs. This move is part of a broader shift in the SEC’s stance toward digital assets, as the agency reconsiders several policies introduced during Gensler’s tenure.
Recently, the SEC has dropped multiple enforcement cases against crypto firms, including actions against Gemini and Kraken. Additionally, the agency has launched a new task force aimed at developing clearer regulations for digital assets, signaling a potential shift away from aggressive enforcement.
Implications for Crypto Regulation
This latest development follows other notable regulatory rollbacks. On February 20, the SEC withdrew its appeal in a Texas court case that struck down its broker-dealer rule. The rule had sought to classify certain DeFi platforms, liquidity providers, and market makers as dealers, requiring them to register with the SEC.
The SEC’s reconsideration of its regulatory approach could mark a turning point for crypto firms operating in the U.S. While uncertainties remain, Uyeda’s stance suggests a more measured and transparent approach to digital asset oversight in the future.
