Former SEC Chief Counsel Says Agency Needs to Clarify Its Crypto Compliance Rules

The US Securities and Exchange Commission (SEC) is falling short when it comes to addressing how it handles the digital asset industry, said TuongVy Le, partner and head of regulation and policy at investment firm Bain Capital.

What the federal agency does is regulate “almost exclusively through enforcement actions,” Le, a former chief counsel for the SEC’s Office of Legislative and Intergovernmental Affairs, said on CoinDesk TV’s “First Mover” on Tuesday.

“When the SEC tells us something is non-compliant, that’s not necessarily the same as telling us what they consider to be compliant,” Le said, referring to the $30 million settlement the agency reached with Kraken, in which it centralized the stock exchange will be closed. its betting service platform to US customers.

In Kraken’s case, Le said, questions remain about the agency’s stance on staking services, such as whether other forms of staking services, including self-staking and decentralized staking, would fall within the agency’s guidelines.

“We don’t necessarily know just from a single enforcement action or even through multiple enforcement actions,” Le said. “Any single action, like the one against Kraken, can be limited in terms of what we can learn from it and what it means for other stake providers.”

Le said in the case of Paxos, the SEC may not apply the securities definition of the Howey test to the BUSD stablecoin, but a different set of criteria through the Reves test.

“Enforcement actions are very fact and circumstance specific, so it can be difficult to know how broadly to read a single action,” she said. “For example, it can be difficult to discern how heavily the SEC weighs particular facts when applying Howey, it can even be difficult to discern—if the complaint does not contain a full analysis—which facts even apply to which Howey factors. “

By “blindly and mechanically applying the existing securities laws” without considering the potential of digital assets and blockchain technology, the SEC could “potentially just kill something like staking.”

As for trying to comply with the SEC, “it’s actually not as simple as going to the SEC’s website and filling out a form and you’re good to go. Applying the federal securities laws to something like staking services, where a provider takes your crypto and doing things with it, which actually raises new and complex questions around custody.”