Crypto Win: SEC Drops High-Stakes Controversial Crypto Broker-Dealer Rule

• SEC withdraws appeal, marking a shift in crypto regulation strategy.
• Texas court ruled SEC overreached with crypto broker-dealer rule.
• Industry groups celebrate as SEC moves towards a more collaborative stance.

The U.S Securities and Exchange Commission (SEC) has dropped its appeal of a Texas federal court ruling that blocked its controversial broker-dealer rule.

SEC withdraws Crypto Rule Appeal

The ‘broker-dealer’ rule aimed to expand the SEC’s oversight to decentralized finance platforms, liquidity providers, and automated market makers with over $50 million in capital. The decision marks a shift in the SEC’s regulatory approach under new leadership.

This decision has prompted reactions from both industry leaders and regulatory observers. Kristin Smith, CEO of the Blockchain Association, stated that the withdrawal of the appeal marks a turning point for the SEC. She criticized the rule as an unlawful expansion of SEC power, which would have created unnecessary compliance hurdles. 

Broker-Dealer Rule

The SEC initially sought to redefine the scope of its jurisdiction over crypto operations and classify a wide range of entities as “dealers” subject to strict registration requirements. A Texas federal judge ruled that the SEC had overstepped its statutory authority in proposing such a broad interpretation. The court found that the SEC’s rule was disconnected from existing U.S. securities laws.

The Blockchain Association and Crypto Freedom Alliance of Texas challenged the rule, arguing that it would impose burdens on decentralized finance protocols. These platforms  lack central operators and it would be difficult to meet the requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. The dismissal of the appeal was welcomed by these groups as a victory for the crypto industry.

SEC Shifts in Regulatory Position

The SEC’s retreat from this appeal reflects a broader shift in its approach to cryptocurrency regulation. Under the leadership of Acting Chair Mark Uyeda, the SEC has re-evaluated its legal strategies in handling the crypto space. This move signals the agency’s intention to adopt a more measured and collaborative approach rather than aggressive litigation tactics.

Moreover, the commission has also paused enforcement actions in prominent crypto cases such as its dispute with Binance. The SEC seems to have opted for ‘outside the courtroom’ settlement of these matters. This indicates a departure from the strict approach taken under former Chairman Gary Gensler.

The SEC’s retreat could prompt the commission to reconsider its regulatory approach to digital assets. The outcome of the appeal could have broader implications for the future of crypto regulation in the United States.