Prominent US senator blasts SEC for lack of crypto regulation

Pat Toomey has called for greater clarity from the Securities and Exchange Commission

Senator Pat Toomey                                 
Senator Pat Toomey has criticised the SEC’s ‘capricious’ approach to cryptos – Photo: Shutterstock
                                

A high-ranking member of the US Senate committee that oversees the Securities and Exchange Commission (SEC) has criticised the United States’ financial regulator for failing to effectively regulate the cryptocurrency sector. 

Senator Pat Toomey writes to SEC Chair

In a letter to SEC chair Gary Gensler, Senator Pat Toomey wrote: “Had the SEC responded to calls for clarity on how it would apply existing securities laws to novel digital assets and services, things could have been different. Companies could have adjusted product offerings accordingly, preventing investor losses today and the SEC would have been free to focus enforcement efforts on the worst actors.”

The capitalisation of the total cryptocurrency market, according to CoinMarketCap, has fallen from $2.1trn at the start of the year to $990bn as of 27 July 2022. 

The decline can partly be attributed to the recent change in the macroeconomic landscape towards higher interest rates and a potential recession. However, it also follows the high profile collapse of several crypto companies and projects, such as Celsius and the original Terra LUNA cryptocurrency. 

Arguing that crypto lenders arguably fell within the SEC’s purview, Toomey wrote: “These firms often promised enormous, seemingly unsustainable interest rates to depositors, and at least one business allegedly engaged in risky practices.”

Toomey: SEC could have shared crypto view sooner

The Republican lawmaker complained that the regulator could have shared its view in the months leading up to the crypto market collapse “on how it thought digital asset lending products met the Reves test, which is used to determine whether certain assets are securities. 

“Instead,” Toomey said, “the SEC is choosing to regulate by enforcement, selectively deciding to apply its opaque position on when digital assets and services are securities.”

He added: “Even as this regulatory uncertainty makes it difficult for well-intentioned companies to comply with SEC regulation, the capricious nature of regulation-by-enforcement is of limited utility for protecting consumers.”

The letter may take some observers by surprise because only last year Toomey called on the SEC “to proceed cautiously and avoid the temptation to pursue paternalistic regulations that restrict investor freedom under the guise of investor protection”.

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