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The SEC seems to be betting Congress won’t regulate crypto
The SEC helped craft new crypto regulations being introduced by Sens. Lummis and Gillibrand, yet continues hammering the industry.
The Securities and Exchange Commission doesn’t seem to take this Congress seriously. And this Congress—whether serious or not—isn’t taking it anymore.
Today, senators Cynthia Lummis and Kirsten Gillibrand—a Wyoming Republican and New York Democrat, respectively—are scheduled to unveil a revamped version of the regulatory regime they proposed for the fintech industry last year, the Lummis-Gillibrand Responsible Financial Innovation Act.
While there’s plenty new in the measure—like a doubling of consumer protections—its centerpiece, once again, undercuts the SEC through classifying most of the fintech industry as commodities overseen by the Commodity Futures Trading Commission (CFTC).
In the wake of crypto collapses, the SEC has used ambiguities in current law—coupled with congressional inaction—to amass sweeping new regulatory powers. Congress wants that power back; well, at least some of the most vocal, angry and well-versed crypto-concerned lawmakers in Washington.
“I think the SEC has been trying to regulate through enforcement, and that’s typically very unwise,” Gillibrand tells me.
The stage is now set for an epic showdown, even as skeptics doubt this divided Congress—whose highpoint is not defaulting on federal debt obligations—is capable of coming together and regulating an industry few members understand, let alone care about. Even as industry leaders, investors and their congressional allies accuse the SEC of crippling crypto, what’s become clear in recent months is, if Congress fails to act, again, securities regulators will aggressively go it alone.
“They’re not the enemy”
Like other federal agencies, senators Lummis and Gillibrand gave SEC officials seats at their re-drafting table—asking for input, running revisions by the regulators and even accepting some of the agency’s recommendations.
“They have seen it. We asked them to tweak it, and we’ve incorporated some of their changes,” Lummis told me for WIRED.
After taking the SEC’s concerns seriously over the past year, the senators have been left astounded-to-angered watching the heavy regulatory hand of the SEC clamp down on the likes of Coinbase and Kraken, et.
“The Binance thing I understand, because it is offshore,” Lummis says. “But the domestic industries really are trying to comply for the most part and they’re just getting the cold shoulder, and that’s not how we regulate in this country. You know, they’re not the enemy.”
They’re feeling misled by the SEC.
“I thought that they could see a use case for crypto,” Lummis says. “And I thought that they could see that the approach that senator Gillibrand and I are taking—with regard to what is a commodity and what is a security and, furthermore, how to deal with the illicit use of cryptocurrencies—was something that they had some support of. So, yeah, I’m scratching my head.”
Lummis is being diplomatic. In the Republican-controlled House, many Republicans personally blame SEC chair Gary Gensler for overstepping his authority. They’ve even introduced a bill meant to dilute Gensler’s power through adding a sixth SEC commissioner and killing the chair position altogether. One of its original sponsors—and unabashed champions—is majority whip Tom Emmer, a Minnesota Republican.
“There’s been a complete lack of leadership at the SEC. He’s been more about enforcement and going after people in the marketplace that are doing legitimate stuff and ignoring the ones that aren’t,” Emmer says.
Over in the Senate, some Republicans admit congressional complicity in empowering Gensler. “The reason he’s having this opportunity is because Congress hasn’t acted,” Arkansas senator John Boozman, the top Republican on the Agriculture Committee, tells me.
Inaction is action in Washington
Congressional inaction—especially as some two trillion dollars disappears or gets pulled from global exchanges—is often action in Washington. And you need more than overpriced lobbyists to grind issues to a halt. And chair Gensler surely has allies on Capitol Hill. Powerful ones too.
The Senate Banking Committee has focused on consumer risks under Chair Sherrod Brown (D-OH), while Elizabeth Warren (D-MA) and Roger Marshall (R-KS) pushed the Digital Asset Anti-Money Laundering Act of 2022, which seeks to clamp down on digital assets in the black market.
That measure hasn’t been introduced in this 118th Congress, possibly because Gensler and the Department of Justice are all but implementing the bipartisan legislation in real time.
While crypto’s allies in Congress are about to roar at the SEC, there’s fear the SEC is enjoying this, seemingly, dysfunctional Congress.
“I don’t want them, after all of our efforts to reach out to them and work with them, I do not want them to come in at the last minute to put their kibosh on this,” Lummis says. Others fear the SEC isn’t just standing in the way of economic progress but that Gensler is now writing his own rules of the digital road.
But no matter which crypto firms Gensler flexes on next, lawmakers are determined to continuously remind the commission, the commissioner and even the courts of one universally agreeable fact: This Congress has yet to erect even basic guardrails for this trillion-dollar industry—even after millions of people recently lost billions of their wealth.
“There’s eventually going to be a digital currency that everybody will have confidence in, but we gotta get regulations,” Tuberville says. “We don’t have regulations.”
Matt Laslo is a WIRED contributor, lectures on technology’s impact on government at the Johns Hopkins University (MA) and is the founder of Ask a Pol—the people-powered press corps. Find him on Twitter @MattLaslo.
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