While the cryptocurrency landscape is captivated by the stirring developments in Washington, financial regulators have been making significant adjustments to the Biden Administration’s position on digital assets.
One step at a time, the acting leaders of banking and securities agencies are dismantling regulations and important enforcement actions that previously constrained the digital asset sector. A forthcoming roundtable hosted by the U.S. Securities and Exchange Commission on Friday is expected to shed light on the nuanced legal approach to categorizing crypto securities, which might indicate a way forward.
Even with permanent heads still waiting for Senate approval to officially lead the SEC, Commodity Futures Trading Commission (CFTC), and banking agencies, each has actively pursued policy changes that seem to clear the way for a fresh start in the cryptocurrency domain. Meanwhile, President Trump’s initiative for a U.S. bitcoin (BTC) reserve, which currently lacks a blueprint for accumulating new bitcoin, is drawing increased attention alongside the gradual progress Congress is making towards comprehensive U.S. crypto legislation.
Legal expert Adam Pollet, who specializes in digital asset projects, characterized this period as a reset.
“They aimed to sort of wipe the slate clean,” he remarked in an interview, interpreting the SEC’s recent stance as a message: “We want you to explore and innovate, and we won’t impede your efforts.”
At the SEC, a series of actions have reverted the agency to its posture from before the conclusion of Trump’s first term, when then-SEC chief Jay Clayton spearheaded an enforcement initiative against Ripple for being an unregistered exchange. CEO Brad Garlinghouse noted on Wednesday that the SEC is retracting that allegation — the latest in a series of high-profile crypto cases the agency has let go. The SEC is no longer maintaining that most cryptocurrencies qualify as unregistered securities.
However, the SEC’s retreat from its previous enforcement guidelines does not inherently establish a new policy; rather, it creates a vacuum of policy where the regulator has stepped back while awaiting additional legal direction.
SEC Reversals
Similarly, this sentiment applies to the agency’s abandonment of its contentious crypto accounting directive known as Staff Accounting Bulletin No. 121, alongside its recent choice to discard a proposed rule that would have required certain digital asset platforms to register with the SEC for conducting securities transactions.
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These initiatives were perceived as potentially jeopardizing the business operations of crypto platforms, and their swift removal is reopening avenues for growth within the industry.
“I truly cannot recall a time when something was reversed so quickly,” Pollet remarked regarding the pace of the agency.
Additionally, the SEC and CFTC have taken other actions that can be seen as progress. The SEC recently issued a warning regarding memecoins, cautioning investors that those who invest in unregulated corners of crypto will not receive protections and elaborating on its reasoning that these coins do not qualify as securities. While this isn’t a formal regulation, the agency’s position offers the industry insight into how its new leadership assesses crypto assets, potentially guiding companies as they embark on new ventures.
“It instills more confidence in decision-making,” Pollet stated, noting that the Republican commissioners appear to advocate for a more accommodating and open-minded approach towards cryptocurrency.
In a parallel development, the CFTC’s Acting Chair Caroline Pham is working on establishing a pilot program for tokenization backed by stablecoins — a long-awaited sandbox initiative that would allow businesses to test without fear of stringent regulations.
The agency is also anticipating the confirmation of former Commissioner Brian Quintenz as chair, who previously served as chief policy officer for a major digital asset investment firm and was known for his support of cryptocurrency during his tenure at the agency.
Relaxation Among Banking Regulators
In the banking sector, regulators like the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, which had faced accusations of unfairly discouraging banks from servicing crypto clients, have rescinded prior guidance. Earlier this month, the OCC revoked its policy requiring banks to obtain written approval from federal authorities before engaging in crypto-related activities. Consequently, U.S. banks now have greater freedom to participate in digital assets, including stablecoin issuance — a newfound openness closely monitored by legal firms advising on such business practices, such as Debevoise & Plimpton.
Similarly, the FDIC’s interim leadership is “actively reevaluating our approach to supervising crypto activities,” indicating a potential withdrawal of previous guidance regarding these matters.
This all signifies a “very clear crypto mandate,” stated Erin Martin, a former SEC attorney now at Morgan Lewis. She highlighted the active crypto task forces across various sectors: within the SEC, a cross-agency group involving multiple governmental branches, and a newly formed crypto caucus in Congress.
Ongoing Uncertainty
Nonetheless, amid this transitional phase, the crypto industry faces a lack of active federal guidance. Apart from state oversight, the situation is characterized by a patchwork of inconsistent federal court decisions regarding how tokens may or may not be classified as securities based on the so-called Howey test established by the U.S. Supreme Court. Ultimately, Congress will need to clarify the standard.
“Until these issues are firmly established, we are navigating through an area of uncertainty,” Martin remarked.
As the agency stands by, she views the SEC’s more receptive approach as a return to “normal operations” where it is willing to engage in dialogue with the companies it oversees. She looks forward to the roundtable discussion on Friday addressing “the challenges surrounding the application of federal securities laws within the industry and how we can make it function effectively.”
She emphasized that the conversation should start with the fundamental query: What defines a crypto asset as a security?
In contrast to others appointed by Trump, the nominee to lead the SEC is a more conventional and measured former commissioner, Paul Atkins. Securities lawyers do not anticipate any dramatic shifts with his arrival.
“Atkins is an institutionalist,” Martin noted. “I doubt he will push for a comprehensive overhaul of the SEC.”
Since the two Republican commissioners on the board previously worked for Atkins — including acting chairman Mark Uyeda — it is expected he will continue along the same lines they have demonstrated during the busy early weeks of this administration.
“It’s evident that he recognizes crypto as a lasting element and believes there should be a thoughtful strategy regarding how we progress at the federal level,” Martin remarked.
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