SEC to Judge: Deny Coinbase’s Call for Cryptocurrency Rule Explanation

The US Securities and Exchange Commission has asked a judge to reject Coinbase’s request to compel the commission to respond to a rule-making petition that asked for clearer crypto regulation guidelines.

In a court filing on Monday, the SEC said it is not mandated to meet the requirements outlined by Coinbase outlined in the petition while also arguing that the firm has called for a complex set of reforms and rule-making in an unreasonably short amount of time.

“Coinbase’s preference for faster or different regulatory action by the commission does not entitle it to extraordinary relief from this court. The petition should be denied.”

As reported, Coinbase filed a lawsuit with a federal appellate court in Philadelphia last month, alleging that “the SEC refuses to address Coinbase’s rulemaking petition” even as the agency aims to initiate enforcement actions against the firm for listing unregistered securities.

In July last year, Coinbase filed a petition with the SEC to write regulations explaining how securities laws apply to cryptocurrency and to engage in a formal notice-and-comment process to allow the public to weigh in.

The largest crypto exchange in the US also submitted a comment to the agency in March, asking for more clarity on the SEC’s views on staking services, which is when users lock crypto assets for a set period of time to help support the operation of a blockchain and earn rewards in return.

However, the SEC argued in the filing that regulatory changes take time to consider. 

It’s a “necessarily complicated endeavor,” the agency said, noting that there’s no deadline by which it must complete the task. 

The First Time SEC Explains Court Views 

In response to the SEC filing, Coinbase Chief Legal Officer Paul Grewal said it may be the first time the agency has formally explained in court its views on whether and how it should create rules for the crypto industry.

“The SEC told the court that rulemaking may take years and they’re in no rush,” he said, adding that the agency will continue to use enforcement actions instead of defining a regulatory framework. 

The SEC acknowledged that it will continue to use enforcement actions as a substitute for rulemaking for the foreseeable future, but not to worry — those enforcement actions may eventually “inform” not-yet-planned rulemaking. 4/7

— paulgrewal.eth (@iampaulgrewal) May 16, 2023

“The SEC also said that the public statements by Chair Gensler are not formal guidance or policy statements from the SEC and the public cannot rely on them as such.”

The relationship between the SEC and Coinbase has considerably deteriorated as of late.

Back in March, the commission sent a “Wells notice” to Coinbase, threatening the crypto exchange with legal actions regarding some of its listed digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. 

In response, Coinbase CEO Brian Armstrong accused the agency of engaging in “some really sketchy behavior.”

The crypto boss has also indicated that the exchange could leave the US if regulators don’t clarify their approach to the digital asset space. 

“Anything is on the table, including relocating or whatever is necessary,” he said during the Innovate Finance Global Summit last month.