DeFi
US SEC authorizes expansion of ‘dealer’ rules that could extend to DeFi
The United States Securities and Exchange Commission (SEC) expanded its definition of a dealer today to attract many more financial operations into its jurisdiction – including, as it warned in a footnote to its initial proposal – those dealing with crypto securities.
“The commission does not exclude any particular type of securities, including crypto asset securities, from application of the final rules,” according to the SEC description. “The Broker Framework is a functional analysis based on the securities trading activities undertaken by an individual, not the type of security being traded.”
The Dealer Rule is part of several crypto-related regulatory efforts that were pending with the SEC and other agencies, including the Internal Revenue Service. Although it has attracted less attention than the IRS tax measures and the SEC’s proposals weighing on expanding the definition of exchange and restricting the custody of cryptocurrencies, this decision could have consequences. serious consequences in the digital asset sector, particularly in decentralized finance (DeFi).
“In the absence of an exemption or exception, if someone trades in a manner consistent with de facto market making, they must register with us as a broker – consistent with the intent of the Congress,” SEC Chairman Gary Gensler said in a statement.
THE rule text noted the many objections and stated confusions from crypto industry insiders, including those in DeFi.
“While some commenters have stated that the proposed rules should not apply to so-called DeFi, the question of whether there is a broker involved in a particular transaction or structure (whether or not it is called so-called DeFi) is an analysis of facts and circumstances,” the agency noted. “There is nothing in the technology used, including protocols based on distributed ledger technology using smart contracts, that would prevent activities in crypto asset securities from falling within the scope of activity of brokers.”
The commission considered a crypto exclusion, according to the document, but decided it would have “adverse competitive effects” by giving crypto companies an advantage over those that must register.
Although this effort – which will go into full effect in April of next year – was largely aimed at electronic participants in the US Treasury market, the requirements will be the same for any business falling under the expanded definition. A broker must register with the SEC, comply with securities laws, and join an industry-backed self-regulatory organization.
As the crypto industry has often argued, many DeFi operations may find themselves unable to register or maintain compliance with SEC requirements.
SEC commissioners Mark Uyeda and Hester Peirce opposed the rule Tuesday.
“Under the Commission’s approach, any person can be a ‘dealer’ if they buy and sell securities in the course of a regular business,” Uyeda said, arguing that the change “creates additional regulatory confusion for d “other markets, including crypto asset securities”. “
“It is not surprising that the rule reflects little thought about its practical application in crypto markets.” noted Peircewhich has been calling on the agency for years to establish appropriate regulations for cryptography.
“The SEC has not only failed to address the substance of our concerns, but has also failed to articulate a discernible path to compliance for DeFi market participants,” the organization said in a statement. “Imposing obligations on entities in the DeFi ecosystem that cannot be met is wrong, impractical and hostile to innovation.”
The crypto industry fought with the regulator in federal courts over which cryptocurrencies met the definition of a security over which the SEC would have authority. The outcome of this legal battle could have major implications in the debate over which companies are considered dealers under this latest regulatory requirement.