SEC Reverses Course on Crypto Regulation: Acting Chair Orders Rethink of Stricter Firm Rules

• SEC shifts crypto oversight, abandoning strict ATS registration proposal for firms.
• Uyeda aims to separate crypto and Treasury regulations, signaling a policy shift.
• Crypto firms see relief as SEC moves from enforcement to collaborative regulation.

The U.S. Securities and Exchange Commission (SEC) is making a significant move, changing its stance on crypto regulation. The acting chairman, Mark Uyeda, has instructed SEC staff to explore discarding a controversial proposal that would have required certain cryptocurrency firms to register as alternative trading systems. 

This move indicates a shift in regulatory priorities and marks a departure from the previous administration’s approach, which sought to impose stricter oversight on the crypto industry.

Origins of the 2022 Proposal

In 2022, the SEC proposed extending the definition of alternative trading systems (ATS) to include some crypto companies. This expansion was initially designed to enhance regulatory oversight in the Treasury markets but later encompassed digital assets. 

Related: SEC Drops Multiple Lawsuits and Investigations Against Crypto Firms—Here’s the List

The proposal faced immediate backlash from the crypto sector, which argued that such measures would impose excessive regulatory burdens, stifling innovation and growth within the industry. Many industry stakeholders viewed it as a heavy-handed attempt to restrict crypto market activity rather than a genuine effort to provide investor protection.

Uyeda’s Rationale Behind the Reversal

Mark Uyeda has explained that linking Treasury market regulation with crypto oversight was an error. He acknowledged that the initial plan unfairly grouped two distinct financial sectors under a single regulatory system. 

Therefore, the SEC is now reassessing its approach, aiming to separate the oversight of government securities from cryptocurrency regulations. Uyeda has also called for renewed discussions with the Treasury Department, the Federal Reserve, and market participants to reevaluate the original regulatory adjustments for government securities trading platforms.

Impact of the Policy Change

This strategic shift reflects the broader changes within the SEC under its current Republican leadership. Earlier this year, the agency launched a crypto task force to revamp its policy on digital assets. 

Related: SEC Abandons Cumberland DRW Suit: Ripple Case Next?

The SEC has also started dismissing or pausing several pending lawsuits against crypto firms. These actions indicate a more flexible stance, favoring engagement and dialogue over enforcement-heavy tactics.