With Regulation on the Rise, Congressional Blockchain Caucus Steps Up to Test SEC’s Approach

Coming after the Biden Administration’s Executive Order on Digital Assets, the Congressional Blockchain Caucus has signaled it will watch new regulation in line with their belief in a “light touch” approach.

The Caucus asked SEC Chair Gary Gensler in March 2022 for information on “voluntary” requests for documents and information to blockchain, cryptocurrency, digital assets and other entities.

Congressional Blockchain Caucus Co-Chair Rep. Tom Emmer (R-MN) said the letter came in response to complaints from crypto and blockchain firms that agency requests were “overburdensome,” stifled innovation and did not “feel particularly voluntary.”

Advocating “a light touch regulatory approach”

The SEC has expressed a strong interest in regulating crypto trading platforms.

The SEC’s Division of Enforcement is obtaining information from blockchain and cryptocurrency firms. The eight members of Congress who signed the letter worried that the SEC is using investigative powers “to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.”

The Congressional Blockchain Caucus is a bipartisan group of members of Congress and staff who favor “a light touch regulatory approach” for blockchain and cryptocurrency.

Members have sponsored bills on blockchain and cryptocurrency such as the “Securities Clarity Act” and the “Digital Commodity Exchange Act.” Those bills seek to clarify and streamline regulation by making regulatory schemes less complicated and onerous on industry.

Seeking information

The letter leverages the mundane Paperwork Reduction Act to elicit information on whether the SEC is making “overburdensome” requests. Themes include:

  • Volume: In the last five years, how many voluntary document requests has the agency issued? How many questions do the letters ask, on average? What kinds of businesses do they ask?
  • Costs: What compliance costs do recipients incur to comply? How much time do they have to respond? Has an SEC cost-benefit analysis determined the value of the information versus the fairness and efficacy of requests?
  • Effects: Do recipients know responses are voluntary? What are the consequences for declining to respond? Does the agency tell recipients if they are under informal investigation?
  • Purpose: Do recipients know the objective of the requests? How SEC will use the information?

Emmer acknowledged “the SEC has authority to obtain info from market participants for rulemaking purposes.” He also said “burdensome reporting requirements” should not weigh down crypto startups. He said the caucus “will ensure our regulators do not kill American innovation and opportunities.”