Coinbase’s Chief Legal Officer, Paul Grewal, has taken a step towards resolving the ongoing regulatory ambiguity surrounding digital assets. On October 13, 2023, Grewal filed a formal response with the U.S. Court of Appeals for the Third Circuit, urging the court to issue a mandamus order. This legal move seeks to compel the Securities and Exchange Commission (SEC) to act on Coinbase’s rulemaking petition within a span of 30 days. The move underscores the growing impatience and concern within Coinbase and the broader digital asset community towards the SEC’s perceived bureaucratic dalliance in clarifying the application of securities laws to digital assets.
Since July 2022, when Coinbase initiated its petition for rulemaking, there has been a conspicuous absence of action from the SEC in providing clear directives on how securities laws apply to digital assets. Despite facing an enforcement action under these same laws, the SEC has not shown a willingness to expedite the clarification process. The regulatory body’s recent update on October 11, 2023, merely shared a staff-level recommendation to the Commission regarding Coinbase’s petition without a formal commitment to action.
Paul Grewal and Coinbase have criticized the SEC’s lack of transparency and evasiveness, terming it a “bureaucratic pantomime.” The digital asset industry remains entrapped in a regulatory Catch-22 owing to the SEC’s demand for registration from digital asset firms without availing clear guidelines on the registration process. Furthermore, the contradictory statements emanating from the SEC alongside its aggressive enforcement actions further convolute the regulatory landscape.
Recent developments have only served to underline the SEC’s apparent resistance towards initiating new rulemaking. The SEC Chair reemphasized the sufficiency of existing laws and rules for digital assets, while a noticeable surge in enforcement actions against digital asset firms, including novel actions against non-fungible token (NFT) issuers, has been observed. These actions presuppose the adequacy of existing rules, a notion that stands at odds with the premise of Coinbase’s petition for new rulemaking.
With the regulatory ambiguity continuing to cast a long shadow over the digital asset industry, Grewal argues that a mandamus order is warranted to hold the SEC accountable and to propel it into action. He emphasizes that clear guidelines are quintessential to ensuring legal compliance, nurturing industry growth, and eradicating the ongoing Catch-22 scenario that the industry finds itself ensnared in. The call for a mandamus order is seen as a necessary judicial intervention to end the SEC’s prolonged inaction, and to foster a conducive regulatory environment for digital asset firms.
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