The SEC Is Preparing To Intensify Its Scrutiny Of Exchanges Involved In Decentralized Finance
The SEC's upcoming vote to clarify that rules governing securities exchanges in the US may also apply to decentralized finance projects could indicate an impending increase in the regulation of decentralized digital asset trading by the markets regulator.
Because Bitcoin
April 14, 2023
CoinDesk reported that the SEC is considering revisiting a proposal from last year that would expand the definition of "exchange" to cover platforms involved in decentralized finance (DeFi) transactions. This proposal, which was originally introduced in January 2022, sought to address a regulatory disparity by capturing a broader range of trading activity in the US.
The crypto industry had criticized the initial proposal as overreaching and lacking clarity, prompting the SEC to revise its language and include estimates of the costs associated with the regulatory expansion. The SEC will vote on the updated proposal on Friday, and the specific changes will be made public following the meeting.
According to an SEC fact sheet outlining the changes, SEC Chair Gary Gensler believes that many crypto platforms are operating as unregistered securities exchanges, regardless of the definition of what it means to be an exchange, and the commission intends to reiterate the applicability of existing rules to platforms that trade crypto asset securities, including DeFi systems, with the agency not actually seeking to define DeFi in the rule but to evaluate each situation based on how the activity is being handled and what service intermediaries are providing.
The SEC staff has stated that DeFi projects facilitating the trading of assets among multiple buyers and sellers, including non-firms and structured projects, could be considered securities exchanges if they meet the criteria of "trading interest" and may face civil charges if they fail to register as national securities exchanges or broker-dealers in the US, potentially indicating ongoing investigations by the agency, although they did not mention any specific projects during a press call.
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