House Republicans tell SEC to refrain from expanding definition of exchange
The proposed rule change could affect DeFi, node operators, and software developers.
Republicans on the House Financial Services Committee told the SEC on June 12 to rescind proposed rulemaking concerning crypto exchanges.
Republicans oppose broadened definition
Specifically, the lawmakers expressed concern with a proposed amendment from the U.S. Securities and Exchange Commission (SEC) that would expand the definition of “exchange” under Rule 3b-16 of the Securities Exchange Act of 1934.
Republican lawmakers wrote:
“Given the goals of this Proposed Rule, it is clear that [SEC Chair Gary Gensler] is using this proposal to push his own personal views regarding digital assets.”
The legislators suggested that the proposed rule change, if it is successful, could “capture a wide range of individuals” including cryptocurrency software developers, blockchain consensus participants, and decentralized finance (DeFi) systems.
Lawmakers said that it is unclear why those parties might be considered an exchange under securities law, adding that it is unclear how they could comply with the proposed rule change given that many do not have access to the data needed for compliance.
Lawmakers also asserted that the change would impact more of the crypto industry than the 15 to 20 platforms that the SEC believes will be designated as exchanges.
Lawmakers warn of consequences
Republican lawmakers urged the SEC not to extend Gensler’s often-expressed view that many cryptocurrencies are securities to platforms that handle those cryptocurrencies. They warned that the proposed change will “shoehorn” blockchain technology into old regulations rather than promoting development and customer protection.
Legislators also said that the SEC’s planned change could “front-run” Congress’ attempts at legislation. Two House committees are working toward a market structure for digital assets; those plans are concurrently being discussed at a June 13 hearing.
The SEC’s proposed rule change has been under consideration in some form since September 2020, and Republican lawmakers are the latest to express opposition.
SEC Commissioner Hester Peirce objected to the proposal as it developed further in January 2022. Industry members including Coinbase have expressed opposition as well. The SEC reopened comments on the proposal in April 2023.