SEC may ease crypto regulations as Commissioner Uyeda questions expanded trading rules

The US Securities and Exchange Commission (SEC) may be shifting its stance on crypto regulations as Commissioner Mark Uyeda calls for scrapping certain provisions of a 2020 rule that was broadened under former Chair Gary Gensler.

The regulation, originally intended to enhance oversight of Alternative Trading Systems (ATS) dealing with government securities, was later expanded to include crypto platforms.

Uyeda now argues that this expansion was a misstep, with vague language potentially subjecting a wide array of crypto-related entities to stringent exchange regulations.

His comments come at a time when the SEC appears to be rolling back some of the aggressive measures taken against crypto firms in recent years.

SEC’s shift in crypto policy

Uyeda raised concerns about the expansion of the rule at the Institute of International Bankers’ Washington Conference on March 10.

He pointed out that the SEC’s decision to extend the regulation beyond its original scope had unintended consequences.

The revised rule, introduced under Gensler in 2022, included ambiguous terms such as “communications protocols,” which Uyeda argues could have inadvertently forced decentralized finance (DeFi) platforms and other crypto-related entities to register as exchanges.

He described this move as a “mistake” and claimed that tying Treasury market oversight to an aggressive clampdown on crypto was an overreach.

Uyeda has now instructed SEC staff to explore the possibility of removing these crypto-related provisions while retaining the rule’s core objective of improving transparency and oversight of Government Securities ATSs.

Industry pushback and SEC changes

Public response to the expanded definition of an exchange has been overwhelmingly negative.

Industry participants have criticised the SEC for failing to provide clear regulatory guidance and for imposing excessive compliance burdens on crypto platforms that do not function as traditional exchanges.

Uyeda’s comments suggest that the SEC is now re-evaluating its position, potentially in response to widespread industry backlash and the legal challenges that followed.

This shift in approach follows the SEC’s recent decisions to drop several high-profile enforcement cases against crypto firms, including Gemini and Kraken.

The regulator has launched a task force aimed at developing clearer policies for digital assets, signalling a possible departure from its previous enforcement-heavy strategy.

Under Gensler’s leadership, the SEC had initiated over 100 enforcement cases against crypto firms, positioning itself as one of the most aggressive regulators in the space.

SEC rethinks legal battles

Uyeda’s stance aligns with other recent developments indicating that the SEC is reassessing some of its policies targeting the crypto sector.

On February 20, the agency withdrew its appeal in a case against a Texas court ruling that had struck down a separate broker-dealer rule.

This rule, introduced under Gensler, sought to classify certain DeFi platforms, liquidity providers, and market makers as dealers, making them subject to registration requirements.

The SEC’s withdrawal from this case, combined with Uyeda’s push to eliminate crypto-related provisions from the ATS rule, suggests a broader reconsideration of regulatory approaches to digital assets.

While it remains unclear how far the SEC will go in rolling back previous measures, the agency’s recent actions indicate that it is moving away from the stringent policies that defined its stance under Gensler.

The outcome of this regulatory reassessment could have far-reaching implications for the crypto industry.

A rollback of these provisions may ease compliance pressures on DeFi platforms and other crypto firms, potentially paving the way for more innovation in the sector.

However, it also raises questions about how the SEC plans to regulate digital assets moving forward, especially as new enforcement strategies and regulatory frameworks continue to be developed.