SEC should consider proposing rules to regulate crypto, Republican commissioner says

Securities and Exchange Commission's Mark Uyeda said the agency needs to consider proposing rules or guidance to regulate cryptocurrencies instead of taking a more enforcement-like approach.

The Republican commissioner said the SEC could have taken steps to aid in creating laws for cryptocurrencies, but didn't. 

"Unfortunately, the SEC did not take this approach and instead is pursuing a case-by-case approach through enforcement actions. As a result, it will take years to reach any type of legally-binding precedent, as matters will need to wind their way through the courts before reaching the court of appeals level," Uyeda said on Monday in prepared remarks in London.  

Uyeda's comments come as the SEC has been vigorous in charges against crypto firms including exchanges Binance and Coinbase. Cases have made their way through the courts this past year, where judges have had to take a role in figuring out how laws apply to the sector.

The crypto industry has argued that they have a difficult time being compliant and still competitive without a clear regulatory path forward in the U.S.

Here comes Howey 

SEC Chair Gary Gensler has stayed true to his views that most cryptocurrencies are securities, except for bitcoin, and that crypto firms need to register with the agency. In its charges against crypto firms, the SEC often cites the Howey Test, a 1946 U.S. Supreme Court case involving citrus groves to determine whether transactions are investment contracts and thus subject to securities laws.

Deciding what a security is can be complicated, Uyeda said on Monday.

"What is, and what is not, a security can be a difficult analysis – not just for market participants, but also for the courts who must analyze the investment contract test described by the U.S. Supreme Court in a 1946 decision," Uyeda said. 

Uyeda also criticized the SEC's approach to other parts of the capital markets, including communications around brokerage firms. 

"Determining whether a person's conduct violates the federal securities laws should not be akin to the Hogwart's sorting hat from Harry Potter, where one's fate is predicted, sometimes wrongly, based on which rule or law the SEC plans to enforce in a way that it has not been interpreted before," Uyeda said.