While the EU has created a comprehensive regulatory framework for the crypto sector with MiCA, the U.S. SEC operates on the basis of a decades-old framework designed for legacy securities, with a “regulation by enforcement” approach, as in the case of Kraken. The SEC’s lawsuit against Kraken for operating as an unregistered securities exchange will proceed to trial, intensifying the legal challenges facing major crypto platforms in the U.S.
Short Narrative:
In November 2023, the SEC charged Kraken, alleging the U.S. crypto exchange failed to register as a securities exchange, broker-dealer, and clearing agency. This move is part of a broader regulatory effort similar to actions taken against Binance and Coinbase, where the SEC is challenging the classification of certain cryptocurrencies as securities. The recent court ruling denying Kraken‘s motion to dismiss the case means the exchange will have to defend its operations in court, highlighting the SEC’s determination to enforce compliance with U.S. securities laws.
Key Details:
- Legal Proceedings: Kraken’s motion to dismiss the SEC lawsuit was denied, allowing the case to proceed to trial.
- Comparison with Binance and Coinbase: All three exchanges are accused of operating as unregistered securities exchanges, with specific cryptocurrencies identified as unregistered securities.
- Broader Impact: The SEC aims to enforce securities laws within the crypto sector, demanding more transparency and investor protection.
Actionable Insight:
In the U.S., crypto companies argue there is a lack of a clear regulatory framework defining what constitutes a security transaction subject to registration. In contrast, the SEC, led by Gary Gensler, believes existing securities laws are adequate. Crypto companies offering services to U.S. residents should be aware of these regulatory expectations and ensure compliance to avoid legal challenges.
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