Regulators Ease Crypto Stance, SEC Drops Ripple Case

While the crypto sector is focused on the policy developments in the White House and Congress, financial regulators have been making significant strides in shaping the Biden Administration's stance on digital assets. These agencies have been gradually dismantling previous policies and enforcement actions that had previously constrained the digital assets industry. A roundtable hosted by the U.S. Securities and Exchange Commission (SEC) on Friday is expected to further clarify the legal framework for defining crypto securities, potentially paving the way for future regulatory actions.

Despite the absence of permanent leaders in key regulatory positions, including the SEC, Commodity Futures Trading Commission (CFTC), and banking agencies, these entities have taken proactive steps to create a more favorable environment for crypto. This shift is occurring alongside President Donald Trump's efforts to establish a U.S. bitcoin reserve and Congress's ongoing work towards comprehensive crypto legislation. Adam Pollet, a securities lawyer at Eversheds Sutherland, described this moment as a reset, indicating that regulators are signaling a more permissive approach to crypto innovation.

The SEC has taken several actions that roll back its previous enforcement stance. For instance, the agency has dropped its accusation against Ripple, a high-profile crypto case, and is no longer arguing that most crypto tokens are unregistered securities. Additionally, the SEC has withdrawn its controversial crypto accounting standard, Staff Accounting Bulletin No. 121, and a rulemaking proposal that would have required certain digital assets platforms to register with the SEC. These moves have created a policy vacuum, allowing the industry to explore new opportunities without immediate regulatory barriers.

The SEC and CFTC have also taken steps that could be seen as more forward-looking. The SEC issued a statement on memecoins, warning investors about the risks associated with these unregulated assets. This statement, while not a formal regulation, provides insights into how the agency's new leadership is evaluating crypto assets. The CFTC, under Acting Chair Caroline Pham, is developing a pilot program on stablecoin-backed tokenization, which aims to create a regulatory sandbox for companies to experiment with new technologies without fear of regulatory crackdowns.

Banking regulators, such as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC), have also relaxed their previous guidance on crypto activities. The OCC rescinded its policy requiring banks to obtain written approval from federal supervisors before engaging in crypto activities, allowing banks to explore digital assets more freely. The FDIC is also reevaluating its supervisory approach to crypto-related activities, indicating a shift towards a more permissive regulatory environment.

Despite these positive developments, the industry is left with a lack of active federal guidance on crypto. The absence of clear regulations has created uncertainty, with a patchwork of federal court rulings on how tokens may or may not be defined as securities. Congress will ultimately need to set the standard for crypto regulation. Erin Martin, a former SEC lawyer, sees the SEC's more open stance as a return to normal operations, where the agency is willing to engage in conversations with the firms it oversees. The upcoming roundtable is expected to address the tensions between federal securities laws and the crypto industry, starting with the fundamental question of what makes a crypto asset a security.

The nominee to run the SEC, Paul Atkins, is expected to continue the current approach of fostering a thoughtful and permissive environment for crypto. Atkins, a more traditional and sedate former commissioner, is not anticipated to advocate for a complete overhaul of the SEC. With the support of the two Republicans on the commission, who used to work for him, Atkins is likely to continue the current regulatory trajectory, recognizing crypto as a lasting innovation that requires a thoughtful federal approach.