SEC targets DeFi in vote to alter proposal concerning 'exchange' definition

• The US SEC has voted to change a proposed rule targeting DeFi cryptocurrency exchanges. 
• The regulator proposed the rule in January 2022 to ensure the registration of exchanges.
• SEC staff have joined industry players to criticize the move. 

The United States Securities and Exchange Commission (SEC) has turned its attention from individual entities to the decentralized finance (DeFi) space as a whole. In its latest move, the regulator has reopened a 2022 proposal to buff up gaps in the regulatory sector. Specifically, the SEC wants to prevent unregistered platforms from offering securities trading unless they have identified with the agency as a broker of exchange.

Based on the filing, the public has until June 13 (30 days) to submit comments following its publication in the Federal Register. It is worth mentioning that feedback from the public will have a bearing on the final draft of the proposal.

SEC emphasizes the need for crypto exchanges and DeFi platforms to register

The news comes after a Friday, April 14 move by the SEC, when the agency’s five-member commission voted three against two to reopen the comment period on amendments to alter the ‘exchange’ definition under the Exchange Act Rule 3b-16. Under the proposal, an “exchange” would be more closely defined as a system that brings together buyers and sellers of securities through structured methods to negotiate a trade” and explicitly include DeFi.

The altered proposal seeks to emphasize the need for cryptocurrency exchanges and DeFi platforms to register with the SEC. Notably, the revised proposal comprises language specifically designed to cover digital assets and the DeFi space, which according to the regulator, falls under the SEC’s jurisdiction.

Citing Chairman Gary Gensler,

Given how crypto trading platforms operate, many of them currently are exchanges, regardless of the reopening release we’re considering today. These platforms match orders of multiple buyers and sellers of crypto securities using established non-discretionary methods....

Before the meeting, Gensler highlighted that the new proposal would serve in the best interest of investors, bringing several DeFi platforms under the scope of the SEC. Nevertheless, Jessica Wachter, an economist with the SEC, notes that most of the newly covered firms are likely to try to get an exemption under the Alternative Trading System exemption.

Among the five SEC commissioners was Hester Pierce, otherwise called 'crypto mom', who said during the meeting that she was disappointed with the regulator’s decision to change the proposal. In her opinion, the revised proposal would only serve the prominent personalities in traditional finance. Hester also accused the SEC of being “uninterested in facilitating innovation and competition in the financial markets.”

The SEC will implement the proposal after a majority approval.

SEC to boost its crypto crime department

Besides changing the regulatory language, the SEC continues to enhance its crypto crime department as part of its effort to clamp down on digital assets.

Based on the above tweet by the agency’s careers department, the Securities and Exchange Commission is hiring three new general attorneys in New York, San Francisco, and Washington, DC.