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

Coming quickly on the heels of the Biden Administration’s Executive Order on Digital Assets, the Congressional Blockchain Caucus has signaled it will be watching new regulation closely in line with their belief in a “light touch regulatory approach.” On March 16, 2022, the Caucus issued a letter to SEC Chair Gary Gensler demanding information on SEC “voluntary” requests for documents and information to blockchain, cryptocurrency, digital assets, or other similar entities. Congressional Blockchain Caucus Co-Chair Representative Tom Emmer (R-MN 6th District) said the letter came in response to complaints from crypto and blockchain firms that the SEC’s requests were “overburdensome,” did not “feel particularly voluntary” and that they are “stifling innovation.” The swell of interest from the executive branch on regulating the industry may be checked by certain legislators determined to ensure the SEC does not hold back continued advancements and innovation in this sector.

As we noted previously, the SEC has expressed a strong interest in regulating crypto trading platforms.  The SEC is using its Division of Enforcement to obtain information from blockchain and cryptocurrency firms. The eight congressmen who signed the letter noted that they had reason to believe 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 Congressional members and their staff who believe that “a light touch regulatory approach” is the best environment for growth in the blockchain and cryptocurrency sector. To further this goal, members of the Caucus have sponsored numerous bills on blockchain and cryptocurrency technology. For example, two bills introduced by Caucus members include the “Securities Clarity Act” and the “Digital Commodity Exchange Act,” which were meant to clarify and streamline regulation of this industry by making regulatory schemes less complicated and onerous on the industry’s participants.

The letter leverages a mundane law—the Paperwork Reduction Act—to elicit information on whether the SEC’s time is appropriately spent or whether the requests are in fact, “overburdensome.” Themes addressed by the members include:

  • Volume: Over the last five years, how many voluntary document requests have been issued; what are the average number of questions asked; and what types of businesses received the requests over the last five years;
  • Costs: What are the total compliance costs imposed on the recipients who comply with requests; what is the average length of time for entities to respond; has the SEC conducted a cost-benefit analysis to determine the value of the information received to the agency versus the fairness and efficacy of requests;
  • Effects: Are recipients aware that responses are voluntary; what are the consequences (if any) for declining to respond to a request; are recipients made aware if they are under informal investigation; and
  • Purpose: Are recipients aware of the specific objective of the requests and the SEC’s plan for use of the information collected.

In tweets publicizing the letter, Rep. Emmer acknowledged “the SEC has authority to obtain info from market participants for rulemaking purposes” but noted that “Crypto startups must not be weighed down by extra-jurisdictional and burdensome reporting requirements.” And, in a sign that Rep. Emmer and the Caucus plan to continue exercising their checks and balance power liberally, he declared “[w]e will ensure our regulators do not kill American innovation and opportunities.”