Former SEC Official Foresees Continued Crypto Exchange Scrutiny

A former U.S. Securities and Exchange Commission (SEC) official, John Reed Stark, predicted that the financial regulator would continue with its regulatory onslaught against cryptocurrency exchanges.

In an August 12 long post on X (formerly Twitter), Stark detailed why he believes the “SEC’s crypto-enforcement sweep will never end.”

Why SEC Targets Exchanges

Stark stated that SEC regulatory crackdown on crypto exchanges was necessary because they are not registered. He noted that these platforms pose systemic risks to the broader financial system because they operate under no regulatory oversight.

Star mentioned that the SEC’s core mission was to protect investors, ensure fair markets, and facilitate capital formation. He further explained why exchanges, broker-dealers, and clearing agencies needed to register with the financial regulator. According to him, this registration subjects the firms to accountability, transparency, and anti-conflict rules.

“One reason for the SEC registrant of crypto trading platforms is to manage the litany of conflicts of interests which can arise when acting as a securities trading intermediary.”

However, Stark noted that crypto platforms provide these functions without registration, avoiding critical regulatory oversight and creating room for conflicts of interest. Thus, the SEC, which cannot monitor their activity and analyze data for fraud and risk, resorts to lawsuits.

Under Chair Gary Gensler, the SEC has brought several enforcement actions against crypto firms, including Coinbase and Binance, over their federal securities law violations. Chair Gensler has also consistently maintained that the crypto industry was rife with non-compliance.

“Without SEC intervention via an enforcement action, crypto trading firms can placeir own financial interests ahead of the interests of the investing public,” Stark said.

The former SEC official further described the crypto industry as a failure waiting to happen. According to him, the industry is a precarious venture where all claims of future innovations are a ruse.

Crypto Stakeholders Disagree

However, crypto stakeholders have consistently disagreed with the SEC’s regulation-by-enforcement approach to the industry. Several stakeholders have called for proper legislation tailored to the industry’s needs.

In recent amicus briefs filed supporting Coinbase’s bid to dismiss the SEC lawsuit, several crypto lobbying organizations, including U.S. Senator Cynthia Lummis, told the court that the SEC’s action was an overreach of its regulatory authority.

Lummis, who is championing a crypto bill in Congress, claims that the case against Coinbase is a move by the regulator to have primary influence “over economic, political, and legal questions under active consideration by Congress and multiple agencies.”