US SEC Rejects the Need for Crypto Rulemaking, Asks Court to Deny Coinbase Petition

The US Securities and Exchange Commission (SEC) has finally responded to the Coinbase rulemaking petition, rejecting the need for new crypto regulations saying that the digital asset industry already has rules and regulations governing it.

Today the SEC responded to Coinbase’s petition for a writ of mandamus — asking the court to require the SEC to respond just yes or no to whether it will undertake rulemaking for our industry. The SEC’s answer? A resounding maybe. 1/7

— paulgrewal.eth (@iampaulgrewal) May 16, 2023

In a May 15^th court filing, the US SEC asked the court the deny the Coinbase petition as the regulator argued that it is under no obligation to fulfill the requirements outlined in Coinbase’s narrow action lawsuit. The court filing reads:

“Neither the securities laws nor the Administrative Procedure Act (“APA”) impose on the Securities and Exchange Commission (“SEC” or “Commission”) an obligation to issue the broad new regulations regarding “digital assets” Coinbase has requested.”

The ongoing court duel between the US crypto exchange giant and the securities regulator dates back to last summer when the crypto exchange filed a rulemaking petition with the SEC in July 2022 that seeks regulatory clarity around how existing securities laws might apply to digital assets and requests the commission draft and approve a rule specific to digital assets.

Having no response from the SEC, Coinbase filed a narrow action suit in April 2023, forcing the Commission to respond to its petition with yes or no.

With the Monday filing, the regulator has effectively said no to the Coinbase petition stating that any rulemaking may take years and that enforcement actions will suffice in the meantime.

The SEC has asked the court to deny the petition arguing that mandamus is “an extraordinary remedy,” but “Coinbase does not and cannot demonstrate such a right” as “no statute or regulation requires the Commission to take such action on a specific timeline.”

The agency again reiterated its legal view of crypto assets as securities and, as such, existing rules and regulations for securities apply to crypto. Furthermore, the regulator called Coinbase’s argument that a decision had already been determined on the petition “baseless.” “The Commission continues to consider Coinbase’s petition in the ordinary course,” reads the court filing.

Coinbase Reacts to SEC Response

Paul Grewal, the chief legal officer of Coinbase, took to Twitter to further explain the SEC response. According to him, the agency has acknowledged that it will continue to use enforcement actions rather than rulemaking for the foreseeable future.

Furthermore, SEC has also distanced itself from the public statements of its chair Gary Gensler saying that they “are not formal guidance or policy statements from the SEC, and the public cannot rely on them as such.”

As per his tweets, Coinbase will formally respond next week. He concluded:

“Overall, the SEC’s response reinforces Coinbase’s longstanding concern that our industry does not have clarity on what the SEC may consider to be within or outside its jurisdiction at any time, and it is likely to continue changing its mind along the way.”

Overall the SEC’s response reinforces Coinbase’s longstanding concern that our industry does not have clarity on what the SEC may consider to be within or outside its jurisdiction at any time, and it is likely to continue changing its mind along the way. 6/7

— paulgrewal.eth (@iampaulgrewal) May 16, 2023