Coinbase Criticizes SEC Rejection of Rulemaking Petition

Coinbase recently made headlines after strongly criticizing the Securities and Exchange Commission (SEC) for its decision to reject the rulemaking petition. The crypto exchange did not mince words when labeling the SEC’s decision as “arbitrary and capricious.” This critique was put forward in a petition filed before the US Court of Appeals for the Third Circuit on Mar. 11.

In its petition, Coinbase argued that the SEC’s denial of the rulemaking petition was not only an abuse of discretion but also a violation of the Administrative Procedures Act. The exchange highlighted the regulator’s failure to provide substantive reasons for dismissing the concerns raised in the petition. Coinbase’s legal chief, Paul Grewal, emphasized the lack of concrete explanations in the SEC’s perfunctory denial.

Coinbase underscored the importance of regulatory clarity for the digital asset industry and criticized the SEC’s apparent preference for enforcement actions over establishing clear rules. The exchange pointed out the challenges faced by crypto firms in navigating the regulatory landscape and highlighted the negative impact of the SEC’s regulation by enforcement approach on American consumers and innovation.

SEC’s Lack of Clear Rules and Jurisdiction

One of Coinbase’s primary arguments against the SEC’s decision is the lack of clear rules from the regulator regarding the application of securities law to digital assets. The exchange maintained that it did not register with the SEC as a national securities exchange or an alternative trading system because it does not offer securities on its platform. Coinbase also contended that crypto falls outside the SEC’s jurisdiction due to the absence of a regulatory framework for digital asset securities.

According to Coinbase, even if the SEC believes it has the authority to regulate digital assets, it must do so through a transparent rulemaking process that allows for public participation and feedback. The exchange criticized the SEC for not following this process and failing to give the public a chance to understand and challenge its views on digital assets. Grewal stressed the importance of adherence to the law in establishing regulatory authority over digital assets.