U.S. SEC To Introduce Proposal Targeting DeFi Crypto Exchanges

• The Securities and Exchange Commission has voted to alter a proposed rule that targets DeFi crypto exchanges.
• The rule was proposed by the regulator in January last year to ensure the registration of exchanges.
• The latest move has drawn criticism from industry players as well as SEC’s own staff.

The United States Securities and Exchange Commission is taking on the decentralized finance (DeFi) space of crypto with its latest decision to reopen a proposal from last year. The SEC had introduced a plan in January 2022, in an effort to address the regulatory gaps that allowed platforms that allegedly offered securities trading but weren’t registered as a broker or an exchange with the securities regulator. 

SEC commissioner criticizes agency’s attempt to target DeFi

According to a report by Bloomberg, the altered proposal will reinforce the need for crypto exchanges and DeFi platforms to register with the SEC. The revised proposal reportedly contains language specifically designed to cover digital assets and the DeFi space, which the regulator believes falls under its jurisdiction. The decision to alter the proposal was taken at a meeting that was held earlier today. 

“Given how crypto trading platforms operate, many of them currently are exchanges, regardless of the reopening release we’re considering today,”

Gary Gensler, SEC Chairman.

SEC Chair Gary Gensler stated before the meeting that the new proposal would be in the interest of investor protection. The new proposal will bring a number of DeFi platforms under the purview of the securities regulator. However, SEC Economist Jessica Wachter believes that many of the newly covered firms will likely attempt to get an exemption under the Alternative Trading System exemption. The 2022 proposal was reopened after three of the five SEC Commissioners voted in favor of the move. 

Hester Peirce, one of the five commissioners of the SEC, expressed her disappointment with the regulator’s decision to alter the proposal during the meeting. According to Peirce, the revised proposal would only serve the big players in traditional finance. She accused the regulator of being “uninterested in facilitating innovation and competition in the financial markets.” The proposal will be open for public comment for 30 days following its publication in the Federal Register. The public feedback will be incorporated in the final draft of the proposal which will go into effect after a majority approval by the Commission.