TuongVy Le: SEC Crypto Compliance Rules Need Clarity

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TuongVy Le recently criticized SEC for its framework regarding the regulation of cryptocurrencies, emphasizing a lack of clarity in compliance rules.

The former Chief Counsel for the U.S. Securities and Exchange Commission’s (SEC) Office of Legislative and Intergovernmental Affairs, TuongVy Le, has criticized the SEC’s approach to regulating the digital asset industry. In an interview on CoinDesk, Le argued that the agency is relying too heavily on enforcement actions to regulate the industry, rather than providing clear guidance on compliance rules.

Le expressed concerns that when the SEC states that something is not compliant, it does not necessarily indicate what the agency considers to be compliant. This lack of clarity can cause confusion for companies operating in the industry, as they may be uncertain as to whether their activities fall within the agency’s guidelines.

Le used the recent case of the Kraken exchange as an example of this issue. The SEC recently reached a $30 million settlement with Kraken. That includes the exchange shutting down its staking service platform to U.S. customers. However, Le argued that this enforcement action did not provide clear guidance on the agency’s stance on staking services. For instance, it is unclear whether other forms of staking, such as self-staking or decentralized staking, would also fall within the agency’s guidelines.

According to Le, relying solely on enforcement actions to regulate the digital asset industry can be limiting, as each action is “very facts- and circumstances-specific.” As a result, it can be difficult to determine how broadly to apply any single action. Moreover, it can be challenging to determine which facts apply to specific factors when applying securities laws, such as the Howey Test, to digital assets.

Paxos Implications

Le highlighted the case of stablecoin issuer Paxos, which received a Wells Notice from the SEC regarding the alleged sale of an unregistered security, the Binance USD (BUSD) stablecoin. Paxos has denied the allegations, stating that the BUSD stablecoin is backed one-to-one. Le argued that the SEC may be applying a different set of criteria, such as the Reves test, to the BUSD stablecoin, rather than the securities definition of the Howey Test.

Le warned that blindly and mechanically applying existing securities laws to digital assets, without considering their potential and the implications of blockchain technology, could have a detrimental impact on the industry. In particular, she warned that staking services could be at risk if the SEC fails to consider the complex questions around custody that arise when providers take custody of users’ cryptocurrency and engage in staking activities.

According to Le, complying with SEC regulations is not as simple as filling out a form on the agency’s website. Instead, it requires a nuanced understanding of the relevant securities laws and the application of these laws to novel and complex situations. Companies operating in the digital asset industry must carefully consider the legal and regulatory implications of their activities, taking into account the potential risks and uncertainties involved.

In conclusion, TuongVy Le’s comments highlight the need for the SEC to provide clear and consistent guidance on compliance rules for the digital asset industry. While enforcement actions can be useful in specific cases, they are not a substitute for clear and transparent regulatory guidance. Without such guidance, companies operating in the industry may struggle to comply with the relevant regulations, leading to increased uncertainty and potential legal risks.

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