White House Executive Order Gives Voice to the Industry for Rulemaking
In this new series, NexusOne will cover the ins and outs of the cryptocurrency industry, identifying news pertinent to the federal government’s legislation and regulation of cryptocurrencies as well as opportunities for NexusOne clients to get involved.
SEC Chairman Paul Atkins indicated his intention to overhaul the federal agency’s
cryptocurrency rules and regulations recently.1 The move will be of little surprise coming
from a pro-crypto administration but new rulemakings are a necessary step to cement
the promises of this presidency to the cryptocurrency industry. This regulatory shift,
combined with a new White House executive order requiring the Executive Office of the
President (“EOP”) review new federal agency rulemakings, gives the cryptocurrency
industry meaningful access to influence federal cryptocurrency regulation through the
Executive Branch.
Recent Decisions by the SEC in Favor of Crypto
The announcement comes at the heels of the SEC replacing its Crypto Assets and Cyber Unit with the new Cyber and Emerging Technologies Unit, which is geared toward protecting retail investors. The aim is to ensure that capital formation and market efficiency are facilitated through innovation while homing in on fraudsters who diminish public confidence in cryptocurrency.2 The CETU Unit is a complement to the Crypto Task Force led by pro-crypto Commissioner Hester Peirce, which will look to clarify the application of federal securities laws to the crypto asset market and recommend policy measures that simultaneously protect investors and foster crypto innovation.3
The reorganization of groups within the agency coincides with its decision to pause major cryptocurrency litigation, including joint motions with Binance and Coinbase for case delays to develop new regulatory frameworks. Most notably, the SEC announced a settlement with the defendants from SEC v. Ripple Labs Inc., within which the agency and the defendants jointly requested that the court dissolve the injunction against Ripple Labs and release the escrowed $125 million penalty.4 The settlement was offered with the express purpose to “facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry” (emphasis added). We suspect that similar settlements in similar, previous litigation may follow as well, especially those having to do with alleged unregistered securities offerings.
Required White House Input on SEC New Rules
Evidently, Chairman Atkins is leading the SEC to engender a new status quo between the regulator and the industry. With his announcement to expect SEC rulemaking, cryptocurrency industry participants may be wondering how to get involved. The good news is that, through a new Executive Order, there is a new review process and set of decision makers industry can engage with outside of the SEC.
Executive Order 14215, titled “Ensuring Accountability for All Agencies,” brings the SEC and its rulemakings into the direct oversight of the White House through Office of Information and Regulatory Affairs (“OIRA”) review requirements at the Office of Management and Budget (“OMB”). As such, any new cryptocurrency regulations will undergo an additional layer of scrutiny within the Executive Branch before implementation. While this may potentially slow the pace of pro-crypto reforms, it ensures a more thorough collective deliberation process that allows many voices to be heard indirectly through political appointees.
As such, this Executive Order is excellent news for the cryptocurrency industry and any company looking to contribute their expert insight and perspective into the federal rulemaking process. Now, cryptocurrency industry participants can apprise the White House of the issues facing their companies as a matter of federal regulation that stifles innovation in a directly meaningful way. All executive departments and agencies will submit for review all proposed final significant regulatory actions to OIRA, which sits within the EOP. The Executive Order also ensures that once finalized, these rules will have explicit White House endorsement through the EOP.
Conclusion
That the bureaucratic rulemaking process must be reviewed for input by the EOP presents the cryptocurrency industry with an excellent opportunity to have its voice heard by federal agencies and to shape regulations. In the next iteration of this series, we will examine how federal securities laws and regulations may be modified to ensure that cryptocurrency innovation is fostered through meaningful rule changes and legislations, specifically within the context of the SEC and its prior enforcement actions against cryptocurrency companies.
