Paul Grewal claims SEC's proposal was “too flawed on process and substance to move forward.”
The proposed alterations from the Securities and Exchange Commission (SEC) that could modify the interpretation of the term exchange and how digital assets are regulated have faced pushback from Paul Grewal, the Chief Legal Officer at Coinbase.
On June 14th, Grewal took to Twitter to voice his concerns, asserting that the SEC's proposal is akin to trying to "fit a square peg in a round hole."
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According to Grewal, both the procedure and substance of the proposition were excessively flawed to be implemented. His comments target the SEC's decision to prolong the commentary period for a potential change in the Securities Exchange Act of 1934, which might extend the applicability of securities laws to decentralized exchanges (DEXs), similar to how they are currently applied to securities exchanges.
When commenting on the matter, Grewal stated:
Requiring a DEX to register in the same way as a national securities exchange is impossible.
Coinbase CLO added that enforcing such an unattainable requirement breaches the Administrative Procedure Act. Moreover, he said that the SEC's lack of economic data doesn't exempt it from conducting economic analyses, especially when the data is available. He further elaborated:
The SEC is attempting to front-run congressional action by baking unsupported assumptions about its crypto jurisdiction into the proposed rules.
The SEC's proposed rule change has been criticized by several US legislators and cryptocurrency advocacy organizations, like the Blockchain Association. They claim that the rule alteration would allow the commission to overstep its authority and broaden its scope to an array of financial products ill-prepared for such regulatory demands.
Grewal believes that while there was a potential path forward with the proposed rule change, it necessitates a "robust consideration of the profound differences between a DEX and a traditional exchange."
These comments from Coinbase arrive at a time when the SEC is in the spotlight due to cryptocurrency regulation. The commission has initiated individual lawsuits against Binance and Coinbase for alleged infringements of securities laws, inciting a backlash from lawmakers advocating for the removal of SEC Chair Gary Gensler.
The debate underscores the ongoing complexities and disagreements around the regulation of digital assets and the contrasting views between regulatory bodies and the cryptocurrency industry.
