US SEC’s Crypto Task Force explores temporary fix for trading

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On April 11, the United States Securities and Exchange Commission‘s (SEC) Crypto Task Force held its second roundtable in a series discussing digital asset regulation, with the focus of this event being how to regulate the trading of digital assets.

During the roundtable, titled “Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading,” SEC Acting Chairman Mark Uyeda suggested that the regulator could consider a “time-limited” digital asset oversight framework to allow firms to keep innovating while the agency comes up with a permanent solution.

“We should consider whether there may be a more efficient method of regulation,” said Uyeda. “While the Commission works to develop a long-term solution to address these issues, a time-limited, conditional exemptive relief framework for registrants and non-registrants could allow for greater innovation with blockchain technology within the United States in the near term.”

Besides positing this short-term solution, the Acting Chairman opened the panel discussion by highlighting the inefficiencies of the current state-by-state licensing framework for digital asset platforms, suggesting a more cohesive federal approach might better protect innovation and consumers.

Uyeda—who remains in charge at the SEC for the moment, with incoming chairman Paul Atkins‘ appointment confirmed by the Senate on April 9—explained that current federal securities laws present issues for integrating tokenized securities into mainstream trading, such as restrictions on listing unregistered securities.

He was also keen to emphasize that blockchain has the potential to transform securities market processes by streamlining operations, enhancing liquidity, and enabling continuous trading.

“I encourage market participants that are developing new ways to trade securities using blockchain technology to provide input on where exemptive relief may be appropriate,” said Uyeda.

The Acting Chief was flanked by fellow Republican Commissioner Hester Peirce, who is head of the Crypto Task Force and is known as “crypto mom,” thanks to her favorable views on the industry.

Pierce was named head of the Task Force when it was launched by Uyeda back in January, with the goal of helping the Commission “draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”

The series of roundtables was announced in March under the heading “Spring Sprint Toward Crypto Clarity,” with the first session taking place on March 21, titled “How We Got Here and How We Get Out – Defining Security Status.”

On Friday, Pierce kicked off session number two by asking the attendees: “What can and should we do in the short term, and what should Congress consider in the longer term to ensure that the regulatory gaps are filled as firms increasingly seek to combine securities and non-securities trading activity?”

Industry discussion

Attendees on the panel included industry participants from Uniswap Labs, FalconX, Coinbase (NASDAQ: COIN) and investor-focused groups, as well as executives from the New York Stock Exchange and the Chair of Finance and Accounting at UC Berkeley.

One topic up for discussion was what aspects of the digital asset industry should fall within the SEC’s purview.

Sticking with the subject of jurisdiction, co-founder of Urvin Finance and We the Investors, Dave Lauer, highlighted the damage caused by the perceived “turf war” between the SEC and fellow finance sector regulator, the Commodity Futures Trading Commission (CFTC), over which agency regulates which parts of the digital asset industry.

“I have found that the turf warfare, the infighting, the constant question of who should be regulating what has caused investor harm directly,” said Lauer, who also sits on the Ontario Securities Commission’s Market Structure Advisory Committee and previously sat on the Financial Industry Regulatory Authority’s Market Regulation Committee.

To solve this conflict, Richard Johnson, CEO and Founder of Texture Capital, advocated for a merger of the CFTC and SEC when crafting new rules for financial trading assets. He criticized the Financial Innovation and Technology for the 21st Century (FIT21) Act, passed by the House last May, for creating a regulatory divide, arguing instead that the SEC’s jurisdiction is limited and cannot extend across the entire digital industry.

Johnson further emphasized that no market can be entirely centralized or decentralized, and while the SEC can set rules within the U.S., those regulations may have limited influence globally. He concluded that the digital asset market will continue to evolve and trade with or without SEC oversight.

Other than a few token mentions from a couple of panelists of the inherent risks involved in the digital asset space, overwhelmingly—much like the Crypto Task Force’s first roundtable—the discussion had a distinctly pro-crypto tenor, with one notable exception.

Lone voice of dissent

The crypto love-in that characterized much of the roundtable indicates the approach of the SEC under the stewardship of Acting Chairman Uyeda since President Trump’s inauguration and the departure of former Chairman Gary Gensler in January.

Once again, it was left to the sole remaining Democrat commissioner, Caroline Crenshaw, to be the lone voice of moderation and caution.

Crenshaw highlighted the risks digital asset trading platforms pose to retail investors, particularly related to the lack of clear custody and registration practices.

“Crypto trading platforms are unique because, among other reasons, they often perform multiple services under one roof, sometimes including brokerage, clearing, and custody,” she said.

In traditional finance, these functions are “typically performed by separate registered entities,” added Crenshaw, because they come with a “high risk of conflicts of interest and risks for investors.”

She pointed out that “in some instances, we have seen those risks materialize in a way that has caused significant market disruption and harm to investors.”

Crenshaw also raised concerns about investors misunderstanding the safeguards in place, arguing that some recent market disruptions and failures, such as FTX, have forced industry observers to become “painfully aware of the mismatch between investors’ expectations and reality.”

She challenged panelists and lawmakers in attendance to consider critical questions surrounding registration, execution standards, and custody risks as part of building a new regulatory framework.

The next Crypto Task Force roundtable will take place on April 25, with the title “Know Your Custodian: Key Considerations for Crypto Custody.”

Watch: Blockchain regulation with Marcin Zarakowski