Securities and Exchange Commission (SEC) Chairman Gary Gensler is under fire for pursuing lawsuits against cryptocurrency exchanges but stands by his decision. He stressed the value of investment protection and registration in his remarks amid fresh lawsuits against Binance and Coinbase.
Platforms like Paradigm and a few prominent investors have criticized the SEC’s regulatory strategy.
Paradigm Disagrees With SEC Chairman Gensler
In a recent blog post, web3 investment firm Paradigm criticized the SEC’s proposed redefinition of an “exchange.” Contrary to what Gensler has proposed, it asserted that the SEC is improperly attempting to bring cryptocurrency trading platforms into its purview. According to Paradigm, decentralized exchanges (DEXs) shouldn’t be subject to securities legislation.
Paradigm highlights that DEXs fundamentally differ from traditional exchanges regarding intermediation and collective action. Thus, making them unsuitable for regulation under the existing definition.
The platform noted, “DEXs are not ‘exchanges’ as contemplated by the Act, and the SEC’s proposal to treat them as such is beyond its statutory jurisdiction.”
Paradigm also points out the “arbitrary and capricious distinctions” made by the SEC in its proposal. The platform notes the procedural flaws in the SEC’s rulemaking process that “violates the rulemaking procedures of the Administrative Procedure Act.” Moreover, it calls out the agency for making a framework “beyond its statutory jurisdiction.”
Meanwhile, American businessman Mark Cuban has slammed the agency and SEC Chairman Gensler for their approach.
Prominent Investors Disagrees With the SEC
In its recent lawsuits, the United States SEC has leveled serious charges against Binance and Coinbase. It ranges from deception and lack of disclosure allegations to serious regulatory violations.
In response, prominent crypto investors have responded by criticizing the watchdog. Instead of taking legal action, Mark Cuban stated that the regulator could have helped the exchange comply with the rules. He noted, “They [SEC] don’t want to help companies get to compliance they want to challenge them to get to compliance.”
The billionaire claimed that the interest of the lawyers employed by the agency motivates the SEC to prioritize legal action. He argued,
“They are full of lawyers. Lawyers want to litigate. If you had business people, more like the SBA, there would be more compliance, fewer lawsuits and better investor education and protections.”
SEC Chair Gensler Stands Firm on the Approach
SEC Chair Gensler disputes the claim that the current regulations prevent crypto intermediaries like Coinbase from registering. Instead, the official suggests platforms alter their corporate structure and implement measures to protect investors against fraud.
“These are the things that protect investors. The fact that they didn’t build their platforms with these things in mind shouldn’t be a free pass to put investors at risk.”
Gensler also drew parallels between non-compliance in the crypto industry and the problems witnessed in traditional financial markets before the introduction of securities laws in the 1930s. He highlighted that we have seen the need to address scams and Ponzi schemes to protect the interests of the general people.
In the interim, Binance.US is facing disruption in its banking services. The exchange recently tweeted that its banking and payment partners have indicated a desire to halt US dollar fiat channels in response to the SEC’s litigation. The major exchange’s US division referred to it as the agency’s “extremely aggressive and intimidating tactics.”
Coinbase top boss also mentions a conversation he had with SEC Chair Gensler. He claims that after the listed exchange requested regulatory input last year, the watchdog changed its ‘tone.’
CEO Brian Armstrong thinks SEC Chair Gensler is an “outlier” and doesn’t accurately reflect the position of the US government on cryptocurrencies.
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