Last week the U.S. Securities and Exchange Commission (SEC) filed two high-profile complaints against Binance and Coinbase, triggering heated debate over the SEC's "regulation by enforcement" approach to crypto-asset offerings.
In a curious twist, the SEC's lawsuit against Coinbase provoked the U.S. Court of Appeals for the Third Circuit to make a rare decision ordering the SEC to urgently respond to Coinbase's petition (called a Writ of Mandamus) requesting the SEC to exercise its rule making powers to establish a clear regulatory regime for crypto-assets.
Among other things, the Third Circuit Court ordered the SEC to explain:
whether the SEC has now decided to deny (i.e. by filing the complaint last week) Coinbase's petition for rulemaking; and
if not, how much additional time the SEC requires to decide whether to grant or deny the petition.
In a 13 June letter submitted to the Third Circuit Court, the SEC responded that it needs an additional 120 days to reply to Coinbase's petition.
In the letter, the SEC said it
has not decided what action to take on that petition in whole or in part
and expressly left open the possibility that it may exercise its discretion to establish specific rules in relation to digital assets.
[T]hat the Commission has now brought an enforcement action against Coinbase itself in no way indicates that the Commission has decided to deny Coinbase’s rulemaking petition. There is no inconsistency between the Commission’s allegations that Coinbase has violated long-existing regulatory standards and the Commission’s consideration of whether the current regime should be augmented or modified
While the regulator said the Writ of Mandamus petition for rulemaking "should be denied", the SEC indicated that it expected to make a recommendation on the petition within the 120-day timeline.
In response to the SEC's letter, Coinbase's Chief Legal Officer Paul Grewal said on Twitter that the SEC
repeat the fallacy that they haven't made any decision on new crypto rules
Grewal tweeted as follow:
Coinbase has long sought regulatory clarity from the SEC but to no avail. In recent times, the SEC has shifted increasingly to a position that "the rules have always been clear" for crypto-assets. This stands in stark contrast to several jurisdictions around the world, including the EU, Singapore and Hong Kong, which are working on tailored regulations for crypto-assets.