KEY POINTS
- Uyeda on Monday criticized a proposal to include ‘communications protocols’ when defining ‘exchange’
- He said it was a ‘mistake’ to link Treasury markets regulation and regulating the crypto sector
- The SEC is now rethinking the possibility of ‘abandoning’ the expanded definition that includes crypto
The U.S. Securities and Exchange Commission (SEC) will assess whether a proposal that determines the definition of an “exchange” can be modified to exclude entities or firms that allow cryptocurrency transactions, marking yet another shift in the new SEC’s approach toward crypto and digital assets.
Acting SEC Chair Mark Uyeda said at the annual Washington Conference of the Institute of International Bankers on Monday that the regulatory agency is looking at a proposal that expanded the definition of the term “exchange” to include “communications protocols” without details.
‘Exchange’ Expanded Definition May be Dumped
Uyeda, who is leading the agency until the confirmation of Trump-appointed Paul Atkins, noted that the SEC under former Chair Gary Gensler proposed a new rule in 2022 that redefined the definition of an exchange.
“The new definition of the term ‘exchange’ included ‘communications protocols’ without clearly defining what that term meant,” he argued.
Uyeda went on to explain that the “vastly expanded definition” of the term would have placed various protocols that used crypto assets under the proposed rule.
“In my view, it was a mistake for the Commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market,” he said.
As a result of his observation into the expanded definition of “exchange,” Uyeda said he has since asked SEC staff to furnish “options on abandoning that part of the proposal.”
If the “communications protocols” part is ultimately removed from the proposal, protocols offering crypto services or solutions will be excluded from the definition.
A Flashback to Pushback in 2022
Uyeda’s comments on the SEC’s “exchange” definition align with the comments of Coinbase Chief Legal Officer Paul Grewal, who, in 2022, said the regulator’s proposed rule could have a consequential impact on decentralized finance (DeFi).
Our turn. Today @coinbase provided comments on @SECGov‘s proposed expansion of the definition of “exchange.” Here’s why the SEC’s approach just doesn’t work. #1
— paulgrewal.eth (@iampaulgrewal) April 19, 2022
“The SEC is going beyond its authority under the Exchange Act in redefining exchange,” Grewal said in a series of posts on X (formerly Twitter).
He noted how the proposed rule change will include DeFi platforms but oddly enough, the proposal does not mention how the proposed definition changes will impact the DeFi ecosystem.
SEC Turns New Leaf
The latest development is just one of several steps the new SEC has taken as the new leadership seeks to rebuild the regulatory agency’s relationship with the crypto industry.
It has made agreements with some companies the Gensler SEC sued, including prominent crypto exchange Kraken and also dropped investigations into Robinhood and exchange Gemini, among others.
So far, crypto leaders have been praising the new leaders at the SEC, but it remains to be seen if Atkins will pursue the same path Uyeda has decided to take when he finally takes the agency’s reins.
