The U.S. Securities and Exchange Commission has published a new definition of securities dealers that includes crypto.

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The Narrative

The U.S. Securities and Exchange Commission (SEC) has warned the crypto industry that it may be a new front in its legal battle with the agency. The commission’s new approach to , defining securities dealers was approved last week with the full knowledge that this could have a major impact on the decentralized finance industry (DeFi).

The regulator didn’t seem to care.

Why it matters

It’s not just a blow to U.S. DeFi. The new rule also reveals the mindset of the commission when it comes policy that impacts crypto. And there will be more. The agency also said it was looking to change its definition of an exchange at the same time it proposed the dealer rule. This proposal was evident in the inclusion of cryptocurrency platforms within that expanded category. It suggests the agency is trying formalize oversight by making digital assets firms comply with the rules of all other securities exchanges.

Breaking it Down

In the shadows of the SEC final rule, the document explains how the SEC considered whether to exclude DeFi from the definition. This would have covered some crypto projects that are required to register and adhere securities laws. The SEC was told by industry commenters that compliance with securities laws could be difficult, but they shrugged it off.

If the Commission were to narrow or carve out the application of the final rules,

The rulemaking document noted that this alternative would lower costs for market participants who trade in crypto assets securities. The agency decided that it would not be fair for everyone else to accept crypto world’s arguments. This was decided in the rulemaking document, which narrowly passed by a vote of 3-2, with both Republican commissioners strongly opposing this move.

The SEC’s efforts were not what cryptocurrency lobbyists had in mind. They have called for U.S. regulations to be produced for years. The agency wants investment advisers to only store crypto assets of their clients with “qualified custodians” in addition to the definitions it has for dealers and exchanges. Gary Gensler, the agency’s chair, has said that does not include today’s most popular platforms.

According to the SEC agenda, both the exchange definition as well as the custody restrictions should be completed by April. The SEC’s public agenda states that both the exchange definition and the custody restrictions are expected to be completed by April.

The SEC, if it continues to ignore arguments made by crypto businesses who claim they are being placed in an impossible position, will approve rules that will force them into a state of existential crisis or make them unable to comply. The companies will continue to do what they have been doing, which is to challenge the regulator in court. The digital assets sector may be fighting in court about what constitutes a security beyond the current dispute.

  • Craig Wright will be in court next week to face the Crypto Open Patent Alliance. Click on the links below to read CoinDesk’s coverage. (link) (link) (link) (link)

  • 19:00 UTC (2 p.m. ET) A House Financial Services Committee subcommittee will hold an hearing on illicit finance and crypto.

  • (Wired). The night FTX filed bankruptcy, the site was hacked. Hundreds of millions of dollars worth of crypto was stolen. Andy Greenberg of Wired reports that a recent Department of Justice Indictment reveals what happened.
  • This is a great, easy to understand article that explains the complicated system of regulations, and how industry advancements keep passengers safe while traveling by plane.
  • (Law.com). The First Circuit Court of Appeals is reviewing whether the IRS has the right to demand data on crypto investors from exchanges. This case is tied to James Harper’s long-running lawsuit against the IRS collecting information from Coinbase.

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Next week, we’ll see you!

Nikhilesh De.