- Crypto groups back SEC’s stance on non-custodial DeFi interfaces.
- Coalition urges formal rulemaking to cement the guidance.
- Lack of permanent rules leaves long-term clarity in question.
A group of over 24 crypto firms and advocacy groups came under the umbrella of Defi Fund to push the Securities and Exchange Commission to formally apply the recent guidance on the application of broker-dealer registration requirements to non-custodial user interfaces to its rulemaking.
Call for Permanent Framework on Non-Custodial Interfaces
The group maintains that only intentionally adding the guidance on DeFi interfaces into the agency’s rulebook can provide certainty on the matter in the long run.
“We write to express our support for the Staff’s thoughtful and pragmatic approach to distinguishing non-custodial user interfaces from activities that constitute broker-dealer activity and to request that the Commission consider building on the principles in the Statement with notice-and-comment rulemaking,” said the group.
The SEC had in a guidance last week, excluded “covered interfaces” from broker-dealer requirements. These interfaces in question include those provided by browsers, websites, and DeFi front ends and apps that enable users to perform securities transactions on blockchain protocols.
These platforms must not provide custody of user assets and should only connect to users’ self-custodial wallets. In addition, they must not influence users’ investment decisions or execute orders.
The DeFi groups applauded the Commission’s clarification that the platforms described above will not subscribe to broker-dealer registration requirements. According to them, the Staff has “taken an important step toward aligning regulatory interpretation with the technical realities of disintermediated systems.”
However, they also expressed a pressing concern about the guidance from a forward-looking perspective. They decried its inability to stand as a long-term regulatory provision, which could obstruct the industry’s efforts to comprehensively secure clarity in the digital assets sector.
Coalition and SEC Commissioner Pierce’s Voices Align on Need for Durable Rules
Similar to the coalition, SEC Commissioner Hester Pierce had earlier weighed in on the Commission’s guidance, commending it, but also calling for a “more permanent regulatory approach that addresses the broker definition in light of current market circumstances.”
“People have shown great ingenuity in developing crypto wallets and front ends that serve users well. It would be a shame if investors in crypto asset securities transactions were unable to use these tools because of an overly broad reading of the term “broker,” stated Pierce.
The crypto coalition has also asked the SEC to follow up the statement with notice-and-comment rulemaking and adopt a “principles-based framework” that adequately clarified when an activity falls under the “broker” umbrella.
In their view, converting these principles to rules would not only provide the legal clarity and certainty that encourages innovation, but it would also enhance the Commission’s ability to regulate the classes of intermediaries that actually pose the most risk to market participants.
