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SEC Oversight Hearing; NYDFS's New Regulatory Framework

SEC Oversight Hearing For the Committee on Financial Services

What happened?

On Wednesday, the House Committee on Financial Services (HFSC) conducted a hearing on the “Oversight of the Securities and Exchange Commission” with the Chair of Securities and Exchange Commission (SEC), Gary Gensler, as the only witness.

Prior to the hearing, the Republicans on the HFSC, led by Chair Patrick McHenry (R-NC), sent a letter to the SEC condemning its “reluctance to consider stakeholder feedback and its failure to conduct thorough economic analysis.” The letter suggests that the SEC halt the finalization or implementation of several interrelated rulemakings until their cumulative impacts are evaluated.

During the hearing, representatives expressed concern over the SEC’s lack of transparency and noncompliance with the congressional oversight requests, mainly in relation to the production of documents the committee has sought for more than seven months. “Our patience is wearing thin... the SEC is not above the law, nor is it unique. And you [Chair Gensler] should not want to be the first SEC Chair to receive a congressional subpoena,” Chair McHenry said.

Chair Gensler kept up his well-worn routine of saying as little as possible during the hearing this week. For example, he again emphasized that Bitcoin isn’t a security, yet he refrained from answering if it is a commodity when directly asked that question by Chair McHenry. Additionally, with respect to the SEC’s loss in the Grayscale case in which the court ruled that the SEC was wrong to reject their ETF application, Gensler commented that “it's a recent court action…[that] staff and commissioners will take it up as appropriate.”

What does this mean?

While Chair Gensler has perfected his ability to say as little as possible to Congress, the hearing highlighted Congress’ growing impatience with Chair Gensler’s aggressive rulemaking agenda and enforcement crusade against crypto.

New York State Department of Financial Services Proposes New Regulatory framework

What happened?

On September 18, the New York State Department of Financial Services (NYDFS) published framework adopting “enhanced” criteria for coin-listing and delisting procedures, as well as updated framework on a proposed framework for designating coins or tokens to the NYDFS “Greenlist” — a list of coins that are pre-approved by the NYDFS. The NYDFS is seeking public comments on the proposal. Both are effective immediately.

Under the proposed framework, licensed or chartered “virtual currency” business entities (collectively, “VC Entities'') wanting to self-certify coins must have a NYDFS-approved coin-listing policy tailored to their business model and compliant with regulations.

Stablecoins not already on the NYDFS’s Greenlist, bridged coins not natively issued by protocols, and exchange coins issued by cryptocurrency exchanges cannot be self-certified and require additional NYDFS approval. Currently there are nine Greenlisted cryptocurrencies, including BTC, ETH, the new Paypal Dollar (PYUSD) and six other stablecoins. XRP, Dogecoin and Litecoin are among the two dozen coins removed from the Greenlist in the updated framework. The NYDFS has the sole discretion to add or remove any coin from the Greenlist.

What does this mean?

Compared with the prior framework issued by the NYDFS in June 2020, the new framework imposes more rigorous oversight and an enhanced approval process for VC Entities to list new coins on their exchanges. While the new framework seems to specifically pertain to centralized exchanges, strict regulations on which coins can be listed on such exchanges may have some trickling effects on the DeFi ecosystem as restricting broader access to certain coins may inhibit on-ramping onto DeFi protocols and affect capital formation.


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