Paul Grewal, the chief legal officer at Coinbase, a cryptocurrency company based in the United States, has expressed his opposition to a proposed rule alteration by the Securities and Exchange Commission (SEC). The suggested change aims to redefine what constitutes an exchange and how digital assets are regulated.
On June 14, Grewal took to Twitter to voice his concerns, stating that the SEC proposal is fundamentally flawed both in terms of its process and substance. He likened the attempt to fit a square peg into a round hole, emphasizing that it should not proceed. Specifically, Grewal was referring to the SEC’s decision to extend the comment period for a proposed amendment to the Securities Exchange Act of 1934. This amendment could potentially subject decentralized exchanges to securities laws, mirroring the current regulations applied to traditional securities exchanges.
“Requiring a DEX to register in the same way as a national securities exchange is impossible,” said Grewal. “Requiring the impossible violates the [Administrative Procedure Act]. And simply saying there is no economic data doesn’t absolve the SEC from conducting economic analysis, especially when that data exists.” He added:
“The SEC is attempting to front-run congressional action by baking unsupported assumptions about its crypto jurisdiction into the proposed rules.”
The SEC proposal has faced criticism not only from Paul Grewal but also from various U.S. lawmakers and crypto advocacy groups like the Blockchain Association. They argue that the rule change would grant the commission excessive authority, enabling it to extend its regulatory reach to a wide array of financial products that are ill-prepared to meet such requirements. Grewal, as the chief legal officer of Coinbase, believes that there is a potential solution to the issue by carefully considering the substantial disparities between a decentralized exchange (DEX) and a conventional exchange, emphasizing the need for thorough examination and understanding of these differences.
Coinbase’s remarks come at a time when the Securities and Exchange Commission (SEC) is receiving significant attention in the United States regarding cryptocurrency regulation. The SEC has taken legal action against both Binance and Coinbase, accusing them of violating securities laws. This has sparked criticism from lawmakers who are calling for the removal of SEC Chair Gary Gensler.
Prior to the SEC lawsuit — but following a Wells notice suggesting a potential enforcement action — Coinbase filed a reply in support of its July 2022 petition for a writ of mandamus in an attempt to force the commission to provide regulatory clarity for firms seeking to register. As of June 13, the SEC was awaiting the results of an appeal filed in federal court requesting 120 days to respond to Coinbase’s request.