Crypto firms have been using the “major questions” doctrine to defends themselves against the enforcement actions of the regulations. However, it has its own flaws in place.
Over the last year, multiple firms in the crypto space have engaged with regulators on different issues. These companies have been boldly questioning the regulatory stands against crypto firms. In order to curb the “government overreach”, a major question doctrine recently established a legal precedent.
Typically, Congress writes the rules while agencies like the US SEC and the CFTC follow them. This also implies that federal agencies should not assert “statutory authority” over unclear areas without explicit authorization. For instance, SEC Chair Gary Gensler’s assertion that “all of crypto” falls under his agency’s jurisdiction was arbitrary. Thus, the US courts have the authority to determine when such agencies have exceeded their boundaries.
In simpler terms, as Ron Hammond, a member of the Blockchain Association, pointed out that “Congress creates the laws, and the SEC adheres to their guidance. Congress makes the laws, and the SEC interprets and enforces them.” This doctrine is more of a legal framework for interpreting laws rather than a law itself.
Given that the industry has long been requesting a well-defined regulatory framework, it’s unsurprising that “major questions” arise in the context of crypto. Binance’s US affiliate, for example, has cited this doctrine to challenge an SEC lawsuit that alleges the exchange sold unregistered securities.
A document filed in September last month reads:
“The SEC recently brought several enforcement actions – including this action – premised on its new position that virtually all crypto assets, and virtually all crypto asset transactions, are securities.”
“Indeed, since 2019, Congress has considered more than a dozen proposals that would provide a coherent and workable framework for crypto assets and their trading platforms,” the filing said. “Critically, none of those proposals would confer sole regulatory jurisdiction over the crypto industry to the SEC”.
Coinbase, Binance, and Ripple Fight Back
Coinbase, the largest crypto business in the United States, is making a similar argument. Like Binance, Coinbase contends that the SEC lacks explicit authority to determine whether it operates as an unlicensed securities exchange. They also invoked the “major questions” doctrine in an effort to swiftly dismiss the SEC’s lawsuit.
However, the SEC responded vigorously to Coinbase‘s argument last week, with its retort being described as its “most extensive response to date to crypto industry claims” that the agency is overstepping its boundaries. In its filing on October 4th, the SEC claimed that the “major questions” doctrine does not apply to matters of “enforcement authority”, rendering it ineffective.
Moreover, the SEC introduced a novel interpretation, asserting that the “major questions” doctrine has only been used to challenge “unprecedented regulatory ventures” in areas of significant “economic and political importance”. According to the SEC, Coinbase does not hold the same level of economic or political significance to warrant the doctrine’s application.
Also, the “major questions” doctrine remains disputed since it has both a “narrow” and a “broad” interpretation. Both these interpretations can determine how the SEC can apply legal authority already granted to them.
Ripple Labs was the first to apply this doctrine in the crypto industry in defending the company against the US SEC’s charges of securities law violations. This issue largely revolves around the competence of agencies such as the SEC when it comes to overseeing the crypto industry. Many in the industry are urging lawmakers to establish rational policies, partly to limit the SEC’s practice of “regulating through enforcement”.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
