Time for a Crypto Reset: SEC’s Uyeda Demands Transparent Rulemaking

In a significant development for the crypto industry, Acting U.S. Securities and Exchange Commission (SEC) Chairman Mark T. Uyeda took centre stage at the agency’s inaugural Crypto Task Force roundtable on March 21 in Washington D.C. His message was clear: the SEC needs to stop relying on regulation through enforcement and instead focus on transparent, well-structured rulemaking to classify crypto assets.

Regulation Through Enforcement Is Not Sustainable

During the roundtable, which brought together regulators, legal experts, and market participants, Uyeda voiced concerns over the SEC’s current approach to handling crypto regulation. “This approach of using notice-and-comment rulemaking or explaining the Commission’s thought process through releases – rather than through enforcement actions should have been considered for classifying crypto assets under the federal securities laws,” he stated.

This sentiment reflects the frustration many in the crypto industry feel as companies and investors navigate uncertain waters. Relying on enforcement actions often leads to legal battles rather than clear direction. Uyeda’s call to reset the approach signals hope for clearer guidelines that can foster innovation while protecting investors.

The Complicated Reality of the Howey Test

One of the key highlights of Uyeda’s speech was the inconsistent application of the Howey test, a 1946 Supreme Court ruling used to determine whether certain transactions qualify as investment contracts. Over the years, the crypto space has seen fragmented interpretations of this standard.

Uyeda, drawing from his experience as Chief Advisor to the California Corporations Commissioner, recounted a time when he argued that a certificate of deposit with an attached bonus qualified as an investment contract only to see the court reject that position. He pointed out how different federal circuits have varying requirements; some demand the pooling of investor funds and pro-rata profit distribution, while others focus more broadly on shared risk. Another area of confusion lies in whether the gain for investors must come from efforts made after the sale or if significant actions taken beforehand are enough.

Learning from the Past: Providing Guidance

Uyeda made it clear that differences in judicial opinions are not unusual, as court decisions are often tied to specific facts. However, he emphasized that when market uncertainty has arisen in the past, the SEC stepped in to offer guidance. For instance, the Commission has previously provided clarity in the classification of whisky warehouse receipts and condominium sales, eliminating ambiguity for businesses and investors alike.

So why not apply that same principle to digital assets? Uyeda’s suggestion is a reminder that proactive guidance, rather than reactive enforcement, can ease the confusion surrounding crypto classification.

Time for a Crypto Reset

The roundtable discussion led by Acting Chair Uyeda set a tone of urgency for the SEC to reconsider its approach toward crypto assets. His call for clear, structured rulemaking, instead of courtroom chaos, resonates strongly in today’s fragmented regulatory environment. The crypto industry is evolving rapidly, and only well-crafted, transparent policies will allow it to grow responsibly while safeguarding the interests of all market participants.

As the SEC’s Crypto Task Force continues its work, market participants will be watching closely, hoping that Uyeda’s vision for a crypto reset becomes reality.