Coinfeeds Daily → SEC Clears 'Dealer' Rule Expansion That Could Rope in DeFi

SEC Clears 'Dealer' Rule Expansion That Could Rope in DeFi

Published: Feb 07, 2024 | Last Updated: Mar 17, 2024
Howard Kane

New SEC rule could bring DeFi and crypto operations under tighter regulatory scrutiny, raising industry concerns.

The U.S. Securities and Exchange Commission (SEC) has recently taken a significant step that could have far-reaching implications for the financial sector, especially the burgeoning decentralized finance (DeFi) and cryptocurrency markets. This move involves the expansion of the definition of a "dealer," which could mean that a wider array of financial activities, including those involving crypto assets, might now fall under the SEC's regulatory umbrella.

Understanding the New 'Dealer' Rule

The SEC's new rule, which is set to take effect in April of the next year, mandates that operations considered as dealers must register with the SEC and adhere to securities laws. This expansion is not just limited to traditional financial entities but also includes operations within the DeFi space and those dealing with crypto securities. The SEC has clarified that the use of certain technologies, like smart contracts, does not exempt an entity from being classified as a dealer if they are engaged in crypto asset securities activities.

Implications for the Crypto and DeFi Sectors

The implications of this rule are significant for the crypto and DeFi sectors, which have been operating with a degree of regulatory ambiguity. The rule, detailed in a 247-page document, aims to increase oversight over market dealers by requiring those who provide substantial liquidity to register as dealers or government securities dealers. This applies to transactions in crypto assets that are considered securities or government securities, with an exemption for entities managing assets under $50 million.

Industry and Regulatory Concerns

The DeFi industry has voiced concerns, labeling the rule as unworkable and potentially stifling innovation. These concerns are shared by SEC Commissioners Mark Uyeda and Hester Peirce, who opposed the rule, citing the potential for regulatory confusion and the practical challenges it may pose in the crypto markets. Commissioner Peirce, in particular, has been vocal about her apprehensions regarding the rule's applicability to the DeFi sector.

What This Means for the Future

The rule is scheduled to take effect 60 days after its publication in the Federal Register, with a compliance date set for one year later. This gives entities that may be affected by the rule some time to prepare and adjust their operations accordingly. The expansion of the 'dealer' definition by the SEC is a clear indication that the regulatory landscape for crypto and DeFi is evolving, and participants in these markets will need to pay close attention to these changes to ensure compliance.

Entities should consider seeking legal advice to navigate the complexities of the regulatory framework and to understand the registration requirements. Moreover, staying informed about the rule's implementation timeline and preparing for compliance ahead of the deadline will be essential for continued operation within the legal boundaries set by the SEC.

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