The
U.S.
Securities
and
Exchange
Commission
(SEC)
widened
its
definition
of
a
dealer
today
to
pull
many
more
financial
operations
into
its
jurisdiction
–
including,
as
it
warned
in
a
footnote
of
its
original
proposal
–
those
dealing
in
crypto
securities.
“The
commission
is
not
excluding
any
particular
type
of
securities,
including
crypto
asset
securities,
from
the
application
of
the
final
rules,”
according
to
the
SEC’s
description.
“The
dealer
framework
is
a
functional
analysis
based
on
the
securities
trading
activities
undertaken
by
a
person,
not
the
type
of
security
being
traded.”
The
dealer
rule
is
among
several
crypto-tied
regulatory
efforts
that
had
been
pending
at
the
SEC
and
other
agencies,
including
the
Internal
Revenue
Service.
While
it
drew
less
attention
than
IRS
tax
measures
and
the
SEC
proposals
weighing
expansion
of
the
exchange
definition
and
restricting
crypto
custody,
the
move
could
have
serious
consequences
in
the
digital
assets
industry
–
particularly
in
decentralized
finance
(DeFi).
“Absent
an
exemption
or
exception,
if
anyone
trades
in
a
manner
consistent
with
de
facto
market
making,
it
must
register
with
us
as
a
dealer
–
consistent
with
Congress’s
intent,”
SEC
Chair
Gary
Gensler
said
in
a
statement.
The
text
of
the
rule
noted
the
extensive
objections
and
stated
confusions
of
crypto
industry
insiders,
including
those
in
DeFi.
“While
some
commenters
stated
that
the
proposed
rules
should
not
apply
to
so
called
DeFi,
whether
there
is
a
dealer
involved
in
any
particular
transaction
or
structure
(whether
or
not
referred
to
as
so-called
DeFi)
is
a
facts
and
circumstances
analysis,”
the
agency
noted.
“There
is
nothing
about
the
technology
used,
including
distributed
ledger
technology
based
protocols
using
smart
contracts,
that
would
preclude
crypto
asset
securities
activities
from
falling
within
the
scope
of
dealer
activity.”
The
commission
did
consider
a
crypto
carve-out,
according
to
the
document,
but
decided
that
would
have
“negative
competitive
effects”
by
giving
crypto
firms
an
advantage
over
those
who
have
to
register.
While
this
effort
–
which
goes
into
full
effect
in
April
of
next
year
–
was
largely
targeted
at
electronic
participants
in
the
U.S.
Treasuries
market,
the
requirements
will
be
the
same
for
any
business
roped
into
the
expanded
definition.
A
dealer
must
register
with
the
SEC,
comply
with
securities
laws
and
join
an
industry-backed
self-regulatory
organization.
As
the
crypto
industry
has
often
argued,
many
DeFi
operations
could
find
it
impossible
to
register
or
maintain
compliance
with
SEC
demands.
SEC
Commissioners
Mark
Uyeda
and
Hester
Peirce
opposed
the
rule
on
Tuesday.
“Under
the
Commission’s
approach,
any
person
can
be
a
‘dealer’
if
they
buy
and
sell
securities
as
part
of
a
regular
business,”
Uyeda
said,
arguing
that
the
change
is
“creating
additional
regulatory
confusion
for
other
markets,
including
crypto
asset
securities.”
“Not
surprisingly,
the
rule
reflects
little
thought
regarding
its
practical
application
in
the
crypto
markets,”
noted
Peirce,
who
has
for
years
called
for
the
agency
to
establish
tailored
regulations
for
crypto.
The
DeFi
Education
Fund
was
among
crypto
groups
that
objected
to
the
original
proposal.
The
group
called
Tuesday’s
final
version
“misguided
and
unworkable.”
“The
SEC
not
only
failed
to
confront
the
substance
of
our
concerns
but
also
failed
altogether
to
articulate
any
discernible
path
to
compliance
for
DeFi
market
participants,”
the
organization
said
in
a
statement.
“Imposing
obligations
on
entities
in
the
DeFi
ecosystem
that
cannot
be
complied
with
is
wrong,
impractical,
and
hostile
to
innovation.”
The
crypto
industry
has
been
fighting
with
the
regulator
in
federal
courts
over
which
cryptocurrencies
meet
the
definition
of
a
security
that
the
SEC
would
have
authority
over.
The
outcome
of
that
legal
battle
could
have
major
implications
in
the
debate
over
which
firms
count
as
dealers
under
this
latest
regulatory
demand.
