The court asked the SEC to explain why it denied Coinbase’s request for cryptocurrency regulations

HARSEBURG, Pa. (AP) — A federal appeals court says the U.S. Securities and Exchange Commission needs a better explanation of why it rejected a request from Coinbase (currency) to develop regulations to cover the booming crypto-asset sector — though judges stopped short of overturning the agency’s decision.

3-0 to rule Monday’s release by the 3rd U.S. Circuit Court of Appeals was a partial win for Coinbase Global Inc., which went to court after the SEC rejected its July 2022 request that the agency clarify how it applies securities laws to assets like cryptocurrencies and tokens. Featured.

Coinbase argued that the SEC applied existing securities laws to digital assets, resulting in the need for broad rules.

When asked for comment, a Coinbase spokeswoman pointed to a post on X by Paul Grewal, the company’s chief legal officer, who said they “appreciate the court’s careful consideration.” Messages seeking comment were left with the SEC.

June 2023 Enforcement actions It is still being considered by the Securities and Exchange Commission against Coinbase Inc, alleging that its digital asset trading platform acts as an unregistered broker, exchange and clearing agency.

The SEC said its regulations on cryptocurrencies may change based on “several undertakings” it is currently pursuing, and that developing new rules would take it away from other duties, the court said.

“The one sentence that is inconsistent with the primary concerns of the rulemaking petition is conclusive and provides us with no assurance that the SEC has considered Coinbase’s operability objections, nor does it explain how it took them into account,” Judge Thomas L. Ambro wrote.

Ambro said the agency has taken a general position that some digital assets may qualify as securities and said it may directly address the issues raised by Coinbase through some future rulemaking.

“She said she believes the current securities law framework is not unworkable for digital assets, but we have no basis in the record to determine why she thought so or how she reached that conclusion,” Ambro wrote. “This explanation is not ‘slim’, it is ’empty’.”

The court said the SEC must provide a more complete explanation for the “inadequately justified” decision, but the justices did not order it to undertake a new rulemaking process.

“The SEC frequently prosecutes cryptocurrency companies for non-compliance with the law, but it will not tell them how to comply,” Judge Stefanos Bibas wrote in a concurring letter. “This caution creates a serious constitutional problem; Due process ensures fair notice.”