Patrick Henry, a Republican US Representative from North Carolina, is once again proving himself to be a watchdog for the cryptocurrency industry. Joined by Representative Bill Heizenga from Michigan, they are speaking out against the proposed rule 3b-16, which they feel will undermine the growth of digital assets in the United States.
Letter to SEC
They voiced their concerns in letter to SEC Chair Gary Gensler on Monday expressing concerns over two proposed rule changes in particular.
In January, the SEC proposed an expansion of the definition of “exchange” to include “Communications Protocol Systems.” Gensler said in January he wanted to bring crypto exchanges under the umbrella of regulation this year.
McHenry and Huizenga argue such a broad definition will cause uncertainty for market participants.
“While the SEC does not specifically define a ‘Communication Protocol System’ in the proposed amendments to Rule 3b-16, it is our understanding the SEC intends to take an expansive view. This will cause significant uncertainty for market participants that currently do not meet the requirements of an ‘exchange.’ This potential outcome is concerning and likely to stifle innovation.”
In March, the SEC proposed another rule change. Currently, the Exchange Act of 1934 defines a “dealer” as any person “engaged in the business of buying and selling securities… for [its] own account,” unless it is not doing so as “part of a regular business,” according to SEC Commission Hester Peirce.
McHenry and Huizenga note that the SEC wants to expand that definition of “part of a regular business” to include people who buy and sell securities if they engage “in a routine pattern of buying and selling securities that has the effect of providing liquidity to other market participants.”
Argue the legislators,
“Most concerning, the SEC indicates in a footnote, but nowhere else in the rule, that the proposed rule would also encompass digital assets deemed to be securities without any additional information or related cost-benefit analysis.”
The lawmakers call on the SEC to regulate the digital asset ecosystem using “a balanced approach” that both protects market participants and allows innovation to continue.
“We do not need more regulatory ambiguity in the digital asset ecosystem. To that end, we request that you provide a cost-benefit analysis for the impact of the proposed rulemakings on digital asset market participants; provide information on the harm these rulemakings intend to address, and the SEC’s statutory authority for such rulemakings.”
The legislators also called on the SEC to provide a public comment period of at least 60 days after proposing a rule change.
McHenry is the top Republican on the House Financial Services Committee and Huizenga is the top Republican on the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets.
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