Troy Paredes, a former commissioner at the United States Securities and Exchange Commission (SEC), believes that the regulator may be exceeding its authority when it comes to classifying digital assets as securities.
During a conference in Miami on May 9th, Paredes expressed his opinion that SEC Chair Gary Gensler appeared to imply that the commission had a clear understanding of what qualifies as a security under the Howey test. However, Paredes noted that there is still a “jurisdictional question” that the SEC needs to address regarding digital assets.
Paredes stated, “If something is not classified as a security, then it falls outside the scope of the federal securities laws within the SEC’s jurisdiction. I believe the commission has taken a broad perspective on what qualifies as a security under the Howey test.”
The former commissioner also pointed out that many individuals both inside and outside the SEC are primarily focused on categorizing specific tokens as securities, rather than considering how to adapt the regulatory framework for digital assets. He emphasized that there is a significant amount of uncertainty among firms striving to comply with regulatory obligations.
The SEC has faced criticism for its approach of regulating crypto firms by enforcement, particularly in relation to tokens or crypto services offered to U.S. residents. The commission has filed lawsuits against companies such as Binance, Kraken, and Ripple, and there are indications that it may take enforcement action against Robinhood following a Wells notice.
The SEC’s actions have sparked a response from lawmakers seeking to limit the commission’s authority over digital assets. On May 8th, a majority in the U.S. House of Representatives voted in favor of a resolution that would overturn an SEC Staff Accounting Bulletin related to banks holding customers’ digital assets. However, President Joe Biden has stated his intention to veto the bill.
Overall, there are ongoing discussions and debates surrounding the SEC’s regulatory control over digital assets, with questions arising about the extent of Chair Gary Gensler’s authority in this domain.