While the U.S. Securities and Exchange Commission (SEC) continues to enforce strict regulations on the crypto industry, Marco Santori, chief legal officer at Kraken, believes that a specific legal doctrine could undermine the agency’s authority.
The major questions doctrine, a point of U.S. administrative law that suggests federal agencies should not take action in front of Congress on issues of major economic significance, has been used by other cryptocurrency platforms such as Coinbase (COIN) to defend themselves against potential SEC actions. Santori thinks this doctrine is especially relevant as lawmakers begin working on crypto regulation.
“The fact that Congress is taking this up, and you have representatives on both sides of the aisle – two committees having a historic joint hearing on it – these are all indicators that there is in fact a major question,” Santori said in an interview. “A court might look at what Congress is doing and say that the agency is getting ahead of its mandate from Congress, that this is a major question that ought to be decided by Congress.”
The top lawyer for Kraken, which recently settled a significant SEC accusation that its U.S. staking services amounted to an offering of unregistered securities, said the SEC and its sister agency, the Commodity Futures Trading Commission (CFTC), will have to consider the doctrine.
“The agencies have to decide for themselves whether this is a major question,” said Santori, who was one of the witnesses at the recent joint hearing of the House Financial Services Committee and the House Agriculture Committee.
Santori felt encouraged that most lawmakers from both parties seemed to agree on the necessity of legislation for crypto regulation, but acknowledged that the uncertainty of the Senate’s view leaves some doubt about the potential outcome.
The crypto market has been expanding at a rapid pace, with the total market value growing from around $800 billion at the beginning of the year to over $3 trillion in October 2021.
However, the fast growth in the industry has also led to many concerns about potential fraud and market manipulation. This has prompted calls from regulatory bodies such as the SEC and the CFTC for further oversight on the sector, with the agencies often taking enforcement actions against market participants.
For instance, Kraken was recently charged with selling unregistered securities and had to pay $1.25 million in fines. Coinbase has also been under scrutiny from the SEC, with the agency threatening the company with legal action if it proceeds with its lending platform.
But despite the enforcement actions and the many calls for regulation, the industry has shown resilience, with many market participants expressing their optimism for the ongoing discussions around crypto regulation.
Santori’s view on the major questions doctrine is one of such opinions, with the Kraken legal officer arguing that agencies should be mindful of their authority, especially as lawmakers begin to examine the issue more closely.
If the courts decide that Congress should have the final say on matters related to crypto regulation, it could significantly limit the power of agencies such as the SEC and the CFTC. This would ultimately dictate the future of the industry in the U.S.
For now, though, it remains to be seen how regulatory bodies and the industry will navigate these complex issues.
In conclusion, the major questions doctrine could potentially undermine the authority of regulatory agencies such as the SEC and the CFTC with respect to cryptocurrency regulation. As a result, the future of the crypto industry might largely be determined by the decisions of lawmakers in Congress, who are just starting to work on crypto oversight.
It is important for all stakeholders in the industry, from market participants to regulators and lawmakers, to engage in open discussions and collaborate to develop a fair and effective regulatory framework that enables innovation and growth while ensuring investor protection and market integrity. A balanced approach will be key to ensuring the long-term success of the cryptocurrency industry.