Regulators have DeFi on their toes as they look to rewrite the definition of an exchange.
The US Securities and Exchange Commission (SEC) plans to amend a proposed rule that explicitly says that digital asset exchanges and decentralized finance, or DeFi, platforms must register with the regulator. The Securities and Exchange Commission (SEC) has reopened the hold period for pending rulemaking and issued supplemental information on proposed amendments to the definition of an “exchange” under Exchange Act Section 3b-16.
The public comment period will remain open for 30 days after the reopening version is posted to the Federal Register.
The SEC originally introduced the proposal in 2022 with the goal of addressing “regulatory disparity.” Many platforms that provide securities trading services are not registered as stock exchanges or brokers. The SEC, under Chairman Gary Gensler, wants to fill that gap.
Last year, the crypto industry submitted notes to the Securities and Exchange Commission. Industry criticized the proposal. Many accused it of lacking clarity and of going too far in an effort to expand the authority of the regulator.
Gensler’s SEC hostility toward cryptocurrencies often makes headlines. Announcements of new regulatory and enforcement actions and crackdowns occur regularly. In recent weeks, the agency has battled San Francisco-based payment system Ripple in a high-profile lawsuit.
Bad day for DeFi
Gensler emphasized that many cryptocurrency trading platforms already fall under the current definition of an exchange. Therefore, it is their duty to comply with securities laws. He also argued that investors in the cryptocurrency markets should receive the same protection as those in other markets.
During an open committee meeting on Friday, SEC Commissioner Hester Pierce objected to her colleagues. Pearce accused the commission of taking an “overbearing approach” and not being interested in “encouraging innovation and competition”, focusing instead on “protecting incumbents”. Pierce has become well known in the industry for her pro-cryptocurrency stances on the Securities and Exchange Commission.
The move is widely seen by observers as a way to bring decentralized finance, or “DeFi,” more forcefully into the SEC’s jurisdiction. Gensler and his allies on the committee believe that behavior matters, not the technology behind it.
The SEC has no plans to provide an exact definition of DeFi in the regulation. Instead, it will evaluate each scenario on a case-by-case basis.
You can see the proposed modifications here.
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