The Securities and Exchange Commission (SEC) recently initiated an enforcement action against the cryptocurrency firm ShapeShift, accusing it of operating as an unregistered securities dealer. This move is part of the SEC’s application of the Howey Test, a method derived from a 1946 Supreme Court case used to determine whether an asset qualifies as a security. However, this enforcement has led to internal criticism from SEC Commissioners Hester Peirce and Mark Uyeda, who argue that the action adds to the existing regulatory ambiguity in the cryptocurrency industry.
Lack of clarity in SEC’s crypto policy criticized
Peirce and Uyeda, both Republican commissioners, expressed their concerns regarding the SEC’s approach, labeling it as a continuation of the commission’s “poorly conceived crypto policy.” Their main critique centers on the SEC’s failure to specify which of the 79 crypto assets involved in the ShapeShift case were considered investment contracts or to provide a rationale for their classification. This, they argue, underscores the confusion and uncertainty facing crypto firms under current regulatory practices.
The commissioners also criticized the SEC’s broader enforcement strategy within the crypto sector, particularly its “just come in and register” approach, which they find unsatisfactory. They highlighted the opacity and arbitrariness of current standards, calling for the commission to offer more transparent and specific guidance on how crypto assets are classified as securities.
This internal discord within the SEC comes against the backdrop of an ongoing debate on the need for clear, consistent regulatory frameworks for the cryptocurrency industry, as exemplified by previous actions against major crypto exchanges such as Binance and Coinbase. The controversy reflects deeper issues regarding the regulatory clarity and direction needed to foster compliance and innovation in the crypto industry.
