Can the SEC and CFTC’s pro-crypto rules be overturned? Legal opinion

In the wake of the failed CLARITY cloture vote in the Senate, the SEC and CFTC immediately moved to issue their own rules for crypto markets.

Two days after the vote, the SEC unveiled a five-year exemption that permits the issuing and trading of stock tokens. OXK has since teamed up with ICE to launch trading in 63 NYSE-listed stocks and Securitize launched 12 Securitize Stocks, including Apple, Nvidia and Microsoft.

The SEC has also issued guidance clarifying that a crypto token doesn’t become a security just because a project is buying back its own tokens, and stated that liquid staking tokens are not securities. It has also proposed new rules for the custody of crypto assets.

The CFTC, meanwhile, moved to exempt some crypto software providers from registration requirements. It has proposed a new “crypto asset market” registration category and intends to allow registered exchanges to offer leveraged trading.

But the concern among some in the industry is that these rules could be built on shifting sands. TD Cowen has cautioned that agency rules “are the easiest to rescind” — which was demonstrated when Trump-appointed commissioners wiped away all traces of the Gary Gensler era.

A 2024 Supreme Court decision also means agency rules can more easily be overturned by the courts.

The durability of regulator rulemaking is currently being tested in court, with a community bank group suing the Office of the Comptroller of the Currency for exceeding its authority by allowing crypto firms to obtain national trust bank charters.

To discuss the legal issues involved, Magazine spoke with Yuriy Brisov from D&A Partners. This is an edited version of the conversation.

Magazine: SEC Chair Paul Atkins said after the CLARITY vote failed that the agency was releasing rules because Congress didn’t. Are agencies like the SEC supposed to create rules, or are they just supposed to interpret rules that already exist?

Brisov: They are supposed to create rules. They have this power under the Exchange Act of 1934. The SEC was created as a result of the major meltdown in the US markets in the end of the 1920s. From the moment of creation, the SEC had the power to create rules and regulations on how the laws should apply. American legislation works by creating general rules, like a frame, and then it has a watchdog watching over these regulations.

There was a reason why it was created like this — so that when, say, blockchain tokens came along, the US legislation would be ready to accommodate new technology. That’s what the Commission has been doing for ages now, and it’s obviously within their powers.

Magazine: Can they interpret the rules in the opposite way to an SEC appointed by a previous administration?