Gary Gensler "Stepping Down"? What Changes in Cryptocurrency Regulation at the SEC Under Trump 2.0

Original Title: "Gary Gensler Stepping Down? What Changes in Crypto Regulation Can We Expect from Trump 2.0's SEC?"

Source: BitpushNews

Introduction:

On November 14, Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC), delivered a speech at the 56th Annual Securities Regulation Institute of the Practicing Law Institute, reflecting on his experience leading the agency.

He said, "Being able to work with them, to serve the public, and to ensure that our capital markets remain world-class, I am deeply honored... I am proud to work day in and day out with my colleagues at the Securities and Exchange Commission to protect American families in the financial markets."

This sounded much like a farewell public speech. Some sources suggest Gensler may resign, as past SEC leaders have. However, he may also decide to continue serving as a commissioner.

Body:

Considering Donald Trump's campaign promise to build a crypto-friendly government, his election as president could have a significant impact on the cryptocurrency industry.

Trump would have the ability to appoint a new SEC chairman, who may decide to take a different approach to cryptocurrencies than under current Chairman Gary Gensler. Under Gensler's leadership, the SEC has brought several enforcement actions against industry members, alleging violations of federal securities laws, including actions taken solely for failing to register as broker-dealers, clearing agencies, or national securities exchanges under the 1934 Securities Exchange Act. However, the SEC has not yet proposed rules specifically for cryptocurrencies but has suggested that existing statutory and regulatory requirements could apply to crypto assets.

Crypto industry participants have expressed disagreement with this and reported unsuccessful attempts to engage with the SEC on crypto-related issues. However, with a new SEC chairman set to be appointed, this approach may change, and therefore, members of the crypto industry should begin preparing to engage with the SEC under new leadership once confirmed.

Under new leadership, the SEC could take various different approaches, including:

Suspending enforcement actions solely for registration violations: The SEC has taken multiple enforcement actions against crypto companies solely for violations of registration requirements under the securities laws without allegations of fraud or other misconduct. The new SEC leadership may suspend further enforcement actions solely for registration violations until a clear framework is established to regulate crypto assets and crypto asset intermediaries.

Release of the latest guidance on when a crypto asset is deemed to be sold as a security: It has been over five years since SEC staff released the "Digital Asset 'Investment Contract' Analysis Framework," which describes the circumstances under which a digital asset is offered and sold as an "investment contract" (thus a security). Since then, the crypto industry has undergone significant changes. For example, many crypto projects have matured and become more decentralized, and proof of stake consensus has also become widespread. However, the SEC has not issued additional guidance yet. The SEC could update the framework to take into account changes in the industry over the past five years and explain why certain crypto assets (such as Bitcoin and Ether) are not offered and sold as securities. The new guidance could also address the stablecoin issue, as stablecoins are now one of the most prominent use cases for crypto assets.

Proposing Crypto Rules: The SEC can propose tailored rules considering the differences between crypto assets and traditional securities. So far, despite differing opinions among industry members and legal challenges, the SEC has largely refused to acknowledge the differences between crypto and traditional securities in its rulemaking. Instead, the SEC has broadly applied securities rules and indicated in proposed and adopted versions that these rules would also apply to "crypto asset securities." In some cases, these rules have been finalized because industry members are concerned about the application of these rules to crypto assets and whether the SEC is complying with the Administrative Procedure Act.

Utilizing its Exemptive Authority: The SEC can use the general exemptive authority granted by Congress under Section 28 of the Securities Act and Section 36 of the Exchange Act to provide tailored relief as required by these statutes, which may pose challenges to crypto market participants due to the differences between crypto assets and traditional securities. The SEC can also issue additional no-action positions, refraining from enforcement actions against companies engaging in certain crypto asset activities as a temporary measure until crypto-specific rules can be proposed or adopted.

Updating Special Purpose Broker-Dealer Statements: The SEC can update the 2020 temporary no-action position to allow "special purpose broker-dealers" to conduct transactions and custody functions for "digital asset securities" to be more applicable to today's crypto industry and extend the deadline to February 2026. Currently, only two registered special purpose broker-dealers exist, and due to the SEC's lack of guidance on key issues, it is unclear what activities they are allowed to engage in and what assets they are allowed to engage in these activities with, such as when crypto assets are offered and sold as securities. An update could make this guidance more effective.

With the Republicans controlling the Senate and the House, Congress may also have the opportunity to pass cryptocurrency legislation. Nevertheless, even so, the SEC is likely to play a role in crypto regulation. Recently, bills such as the "21st Century Financial Innovation & Technology Act" and the "Lummis-Gillibrand Responsible Financial Innovation Act," passed in the House with bipartisan support, have carved out space for the SEC and the Commodity Futures Trading Commission in digital asset regulation.

Therefore, cryptocurrency market participants consider it crucial to engage in new SEC government discussions on these topics, especially considering Trump's campaign highlighting cryptocurrency. The SEC may take a different approach to cryptocurrency, so market participants should be prepared to engage with the new SEC leadership to ensure industry perspectives are taken into account.

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