Proposal to Subject DeFi to Exchange Regulations
The U.S. Securities and Exchange Commission (SEC) voted three-to-two on Wednesday on a proposal to clarify that rules for traditional stock exchanges can also be applied to DeFi (decentralized finance).
SEC Chairman Gary Gensler said at the conference on the same day:
Many crypto asset (virtual currency) trading platforms undoubtedly fall under the current definition of an exchange and are obliged to comply with securities laws.
These platforms act as if they can decide for themselves whether they comply with US law. In reality, the law must be obeyed.
Two committee members opposed
Of the five SEC commissioners who voted on the proposal, two voted against it. First, Commissioner Hester Peirce criticized the SEC as follows:
The SEC is no longer creatively creating new regulations while ensuring the potential for groundbreaking innovation. Regulations are so hard-line that they no longer have to worry about the often absurdities that occur.
In addition, Commissioner Mark Ueda also said that regulations to prevent false statements and market manipulation are already widely applied, and there is no basis for involving more businesses, including DeFi, in the existing exchange regulation framework. I doubt that it is.
The SEC is inviting public comments on the proposal for 30 days.
What is DeFi (decentralized finance)?
Refers to financial services or systems that utilize blockchain and are performed in the absence of a central administrator. Abbreviation for “Decentralized Finance.” DeFi financial services include stablecoin issuance, currency lending, and cryptocurrency exchanges. Many platforms use the Ethereum blockchain.
Gensler explained that compliance with the rules will be considered “where buyers and sellers of securities meet on a structured platform to negotiate transactions”.
“Ensuring that platforms like exchanges follow the rules that apply to exchanges benefits both investors and markets,” Gensler continued.
That definition would also cover DeFi projects that connect buyers and sellers to buy and sell assets, and could be subject to civil prosecution if you fail to register as a brokerage firm in the United States.
Peirce said at the conference that the application of exchange rules to DeFi could also apply to blockchain miners and validators.
In response, Tyler Raimo, assistant director of the SEC’s trading and markets division, said it was unlikely that the rule would apply to doing just that kind of activity. However, he added, “We will consider the facts and circumstances of each individual case to decide how to proceed.”
The SEC has been criticized for arbitrarily selecting projects to crack down on without providing clear guidelines. There are also concerns that a response that considers individual circumstances could create room for arbitrary discretion.
connection: US SEC Chairman Gensler mentions virtual currency in congressional testimony Answers questions on securities law