The SEC may be using too much paperwork when it opens investigations into crypto traders.
So far, 2022 has been the year of crypto regulation.
Money poured into cryptocurrency at the outset of the coronavirus pandemic in 2020 and continued for the next two years.
The cryptocurrency market cap passed $3 trillion in 2021 for the first time, up from $14 billion five years ago, as bitcoin and ether reached record highs. And while the top digital coins have lost some of their luster in the ensuing months, cryptos have made their mark over the past two years and look to have staying power.
That new found power makes it a target for regulation from the entity with the most staying power: the U.S. government.
President Joe Biden’s administration has taken notice of the proliferation of cryptocurrencies and on March 9 the White House said Biden would sign an executive order governing the regulation of cryptocurrencies.
The EO outlines the government’s plan to regulate digital assets and the firms that facilitate their markets, which have for the most part escaped the rigorous oversight other securities firms, like stock brokerages, endure.
But now, some members of Congress are pushing back against regulators on behalf of cryptocurrencies.
Congressional Caucus Stands Up for Crypto Firms
This week, eight bipartisan members of the Congressional Blockchain caucus sent a letter to the Securities and Exchange Commission taking the regulatory agency to task for its information seeking process related to cryptocurrency and blockchain firms.
In particular, the caucus takes umbrage with the SEC’s use of the Enforcement Division’s investigative functions to gather information from what the group calls “unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.”
Unexpectedly, part of the problem with the investigations is the amount of paperwork those being investigated must provide the SEC.
“We have reason to believe these requests might be at odds with the Paperwork Reduction Act (PRA),” the letter stated.
While the Congressmembers recognize that it is in the SEC’s purview to request that the entities they are investigating provide certain documents the group says the SEC is overstepping its bounds.
“We understand that the fruits of these requests will help the staff assess the merits of an investigation at its earliest stage; however, pursuant to the PRA, in seeking information from the American public, federal agencies must be good stewards of the public’s time, and overwhelm them with unnecessary or duplicative requests for information,” the letter stated.
Congress Has Questions for the SEC
The blockchain caucus listed a series of questions that the SEC needs to answer by April 29 at the latest.
Among those questions is just how many voluntary document requests the regulator has sent to those involved in crypto trading.
The group is also asking for a year-by-year average for how many questions the SEC asks each voluntary document requests; a year-by-year average of the timeline for each entity to respond to requests; and a year-by-year average of compliance costs.
They are also looking for a cost-benefit analysis to determine the fairness and efficacy of the requests.
It seems as though the lawmakers are looking to provide the crypto community with some cover from overregulation amid increasing scrutiny from the federal government. With the White House, through its executive order, putting out the framework for regulation crypto markets have never seen, it could be some comfort to traders that at least some of their elected officials have their back.
Whether this tactic will work remains to be seen, but the number of people and entities embracing the crypto market will only grow larger from here despite any regulatory roadblocks that may be coming down the pike.
