Coinbase Sues SEC: The Need for Regulatory Clarity
The crypto industry has been in a regulatory grey area for years, with no clear guidelines or regulations. The lack of clarity has created uncertainty for crypto companies and investors, leading to a cautious approach in the industry. Additionally, regulatory uncertainty has prevented the crypto industry from reaching its full potential, hindering innovation and growth.
Coinbase’s Rulemaking Petition
In July 2022, Coinbase filed a petition requesting the SEC to use its formal rulemaking process to guide the crypto industry. The rulemaking process allows agencies to develop regulations with the benefit of public input, and have their position tested through judicial review. To date, more than 1,700 entities and individuals have submitted comments to Coinbase’s petition echoing the request for clarity.
SEC’s Response to Coinbase’s Petition
The Administrative Procedure Act (APA) requires the SEC to respond to Coinbase’s rulemaking petition “within a reasonable time.” However, the SEC has not responded to Coinbase’s petition yet, which has prompted Coinbase to file a narrow action in federal court to compel the SEC to respond. The action filed by Coinbase simply asks the court to ask the SEC to share its decision. This step may feel unusual, but it is also unusual for an agency to bring enforcement actions based on a view of the law that it has not yet shared formally with the public.
Coinbase’s Legal Challenge
Coinbase’s legal challenge is a small but important part of its multi-year, continual plea to leaders in Washington for clear rules of the road. Coinbase believes that it has an obligation to its industry, customers, shareholders, and employees to seek regulatory clarity in the US. Coinbase is not asking the court to instruct the agency how to respond but is simply requesting that the court order the SEC to respond at all, which the SEC is legally obligated to do.
Coinbase Sues SEC: Why Regulatory Clarity is Important for the Crypto Industry?
Regulatory clarity is long overdue for the crypto industry, and until the industry gets that clarity, companies like Coinbase will continue to take every step available to seek it. The rulemaking process is a critical step in giving the public notice about what activities they can and cannot engage in.
The lack of regulatory clarity has prevented the industry from reaching its full potential, hindering innovation and growth. Additionally, the disjointed, regulation-by-enforcement approach adopted by government leaders and regulators at the federal level has the potential to negatively impact American competitiveness and national security.
SEC Enforcement Activity and Coinbase’s Request for Regulatory Clarity
Despite the SEC’s public statements and enforcement activities in the crypto industry, Coinbase believes that the agency has already made up its mind to deny the company’s rulemaking petition. However, the agency has not yet informed the public of its decision. Therefore, Coinbase filed a narrow action in federal court to request that the court compel the SEC to respond to the company’s petition with a “yes” or “no” answer.
If the SEC denies the petition, Coinbase will be able to challenge the decision in court and explain why rulemaking is necessary. According to the Administrative Procedure Act (APA), the SEC must respond to Coinbase’s rulemaking petition within a reasonable time frame. Therefore, the agency must respond to the petition, even if the answer is no, to enable the public to exercise its right to challenge the agency’s decision in court.
Until the crypto industry gets regulatory clarity, it is clear that Coinbase will continue to seek every available option to attain it, including the recent filing. The company has announced that it will remain available to the SEC and all regulators for dialogue on these issues.
Coinbase’s legal challenge is a small but crucial part of the company’s continuous plea to Washington leaders for clear rules of the road. It seems that the company recognizes that rules are necessary, and it has asked for their development. The recent legal challenge is an attempt to compel basic rulemaking, and Coinbase will see it through to its conclusion.