The next generation of crypto regulation at the SEC will include a sensible, clear framework that will protect reasonable protection to investors without slamming the door on efforts to expand the market for digital assets, according to new leaders at the regulatory agency.
An SEC crypto Task Force led by SEC commissioner Hester Peirce has been created to try to reverse the SEC approach to digital assets that “relied primarily on enforcement actions to regulate crypto retroactively,” according to an announcement acting chair Mark Uyeda posted Jan. 21 – one day after taking over from former SEC chair and crypto opponent Gary Gensler, who resigned at noon Jan. 20, the same moment Donald Trump was scheduled to be inaugurated president.
Under Gensler’s leadership the SEC relied primarily on enforcement of traditional securities regulations rather than allowing any modification to take into account the difference between digital and traditional assets.
“The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud,” Uyeda said. “The SEC can do better.”
Under Gensler’s leadership the SEC “refused to use regulatory tools at its disposal and incessantly slammed on the enforcement brakes as it lurched along a meandering route with a destination not discernible to anyone,” Peirce wrote in a Feb. 4 statement in which she promised to create a workable framework of regulations but also warned that the change in administration would not mean total freedom from oversight for crypto advocates.
“It took us a long time to get into this mess, and it is going to take some time to get out of it,” wrote Peirce, who has pushed back against the effort by crypto advocates to overstate her support of their point of view by referring to her as “Crypto mom.”
“Many cases remain in litigation, many rules remain in the proposal stage and many market participants remain in limbo,” she wrote. “Determining how best to disentangle all these strands…will take time.”
Creation of the Crypto Task Force, and the simultaneous scaling back of the SEC Enforcement Division’s Crypto Assets and Cyber Unit represent a “sea change” in the SEC’s approach that will likely lessen its efforts at enforcement and put more responsibility for risk on the heads of investors, according to analysis posted Feb. 5 by the law firm Cleary Gottlieb Steen & Hamilton LLP
Peirce’s criticisms of pending cases could signal, for example “that at least some of the Commission’s ongoing litigation may be dismissed or otherwise resolved,” according to the Cleary Gottlieb analysis.
The reassignment of Jorge Tenreiro – who was appointed as a crypto litigator under former SEC chair Jay Clayton and headed the agency’s crypto-litigation unit under Gensler – to another role in the SEC’s information-technology practice – reinforces the impression that the agency will scale back litigation, dismiss some crypto lawsuits and settle others on terms favorable to the defendants, according to a Feb. 5 Wall Street Journal article that reported the move.
Adding weight to that impression is the reassignment of SEC accounting-office attorney Natasha Guinan, who is said to have been involved in accounting advice that made it more difficult for traditional banks to work with crypto firms, according to the WSJ story.
The SEC is already making pro-crypto progress on other fronts, according to a Jan. 30 analysis from Dechert, LLP. The replacement on Jan. 21 of Staff Accounting Bulletin No. 121 (SAB 121) – the 2022 publication that made it difficult for crypto companies to work with traditional banks by requiring that custodied crypto assets be shown as liabilities on the custodian’s balance sheets – is a significant change for the SEC according to the Dechert analysis.
The SEC replaced SAB 121 a day after Trump’s inauguration with SAB 122, which allows custodians to use FASB guidelines to decide how to handle crypto assets under custody rather than having to include them on balance sheets, according to Dechert.
The Trump administration is also pursuing pro-crypto policies in other ways, according to Dechert, including an executive order that establishes a “Presidential Working Group on Digital Asset Markets” whose membership includes the Treasury Secretary, chairs of the SEC, CFTC and heads of other agencies under the leadership of administration AI and crypto czar David Sacks.
The executive order requires the group to provide a list of all current regulations and advisory documents affecting the crypto industry along with recommendations for which should be modified or rescinded, proposes a federal digital-asset regulatory framework and the creation of a “national crypto asset stockpile,” and bans any federal agency from creating or supporting central-bank digital currencies.
It also defines “digital assets” as any representation of value recorded on a distributed ledger, which may extend that definition to include even traditional assets that are recorded on a blockchain, according to Dechert.
Donald Trump promised during his most recent presidential campaign to improve the federal government’s approach to digital assets through crypto-friendly legislation and by recruiting crypto-market participants to positions in government. During 2024 he also helped launch a decentralized-finance project called World Liberty Financial, according to the WSJ, and launched a memecoin effort worth billions just days before returning to the White House.
Less opposition, not free rein
The change in attitude at the SEC does not indicate the regulator is giving the crypto industry free rein, however, Peirce warned.
U.S. capital markets are robust, efficient and effective because it is governed by rules that protect investors and the integrity of the marketplace, Peirce wrote. “We do not tolerate liars, cheaters and scammers,” she wrote.
The Task Force will prioritize the development of a workable regulatory framework that keeps the SEC within the bounds of the authority given to it by Congress, but will include strong anti-fraud provisions, including the ability to refer potential problems to outside regulators or ask Congress for changes to the rules to plug any gap regulators aren’t able to fill on their own.
Catching up on backlog
SEC staffers are already working on a backlog of applications for exemptive relief, requests for no-action letters and registration statements, but may not have the resources to accelerate the processing of those requests to the degree crypto advocates might want.
“SEC rules will not let you do whatever you want, whenever you want, however you want,” she wrote. “Some of these rules will impose costs and other compliance burdens that some may find irritating, and the Commission will use its enforcement tools when necessary to pursue noncompliance.”
“There is no such thing, however, as an SEC seal of approval,” however, she wrote, so the approval of specific requests should never be considered an endorsement by the SEC of a particular coin or token, or indication that investors will be bailed out by “Mama Government” if “they do something that turns out badly.”
The Task Force web site will provide updates on the agency’s progress, Peirce wrote.
The Task Force will also accept requests for individual meetings from members of the public interested in providing input through a request form posted on the site.
Comments that should be treated as confidential can be transmitted using the procedure described here.
Less confidential input can be sent directly to the Task Force under the subject line “Crypto Task Force Input” at crypto@sec.gov.
• Security status – The status and definition of different types of crypto assets;
• Scoping out – Identification of regulatory areas that fall inside or outside SEC jurisdiction;
• Coin and token offerings – Possible relief for the offering of non-security coin/token offerings;
• Registered offerings – Potential modifications to existing paths to registration for token offerings;
• Special purpose broker dealer – Potential changes/no-action statements allowing broker dealers to deal with crypto as non-security offerings;
• Custody solutions – Potential regulatory framework for practical arrangements between RIAs third-party custody providers;
• Crypto lending/staking – Clarity on whether lending/staking programs are covered by SEC rules;
• Crypto exchange-traded products – SRO proposed rule changes under way for new types of crypto ETPs;
• Clearing agencies/transfer agents – Rules under development to cover tokenizing securities or use blockchain in traditional markets;
• Cross-border sandbox – To accommodate international crypto offerings.
