Crypto Projects Face SEC Compliance Challenges, Lawmakers Seek Solutions

During a House Committee hearing on April 9, titled "American Innovation and the Future of Digital Assets Aligning the U.S. Securities Laws for the Digital Age," experts discussed the challenges faced by crypto projects in complying with U.S. securities laws. Rodrigo Seira, special counsel to Cooley LLP, highlighted that the current regulatory framework is not equipped to handle digital assets effectively. He stated that no crypto project has successfully registered with the Securities and Exchange Commission (SEC) and thrived under the existing regulations.

Seira acknowledged that while crypto projects raising capital should be subject to federal securities laws, the current process is fraught with difficulties. Projects that attempt to comply with the SEC's requirements often face significant resource expenditure and regulatory uncertainty. The registration process is complex and ongoing, requiring crypto projects to operate as publicly reporting companies, similar to traditional stocks.

Representative Bryan Steil, who chairs the Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence, acknowledged the regulatory hurdles faced by the crypto industry. He noted that these obstacles were exacerbated by the previous administration. Steil emphasized the current efforts to pass sensible legislation to address these issues. One recent development was the advancement of the STABLE Act by the House Financial Services Committee, which aims to regulate payment stablecoins tied to the U.S. dollar and other fiat currencies.

Earlier, the Senate Banking Committee advanced the GENIUS Act, which seeks to regulate stablecoin issuers by establishing reserve requirements and ensuring full compliance with Anti-Money Laundering laws. Steil highlighted that the next step is to advance comprehensive digital asset market structure legislation. Representative Ro Khanna had previously indicated that such a bill is expected to be finalized this year. The goal of this legislation is to create a clear regulatory framework for digital assets, defining their legal categories and the enforcement jurisdiction of agencies like the SEC and the Commodity Futures Trading Commission.

The hearing featured a panel of experts, including WilmerHale partner Tiffany J. Smith, Polygon chief legal officer Jake Werrett, and Alexandra Thorn, a senior director at the Center for American Progress. Their insights underscored the need for a more flexible and forward-thinking regulatory approach to accommodate the unique characteristics of digital assets.