SEC
"It may be all too little too late, as Coinbase has been eyeing up other jurisdictions to locate in, with its CEO stating "anything is on the table". pixabay

Global cryptocurrency exchange Coinbase received a "Wells notice" from the US Securities and Exchange Commission (SEC) shocking the crypto community, along with the executives of the exchange.

Coinbase security legalities with SEC

Cryptocurrency exchange Coinbase took action against the Securities and Exchange Commission (SEC) late Monday, asking a federal court to compel the agency to respond to its demand for clearer crypto regulations.

The exchange sent the SEC its so-called petition for rulemaking last July and asked the regulator to propose and adopt rules for digital assets securities. It also sought answers to 50 specific questions that would provide "clarity and certainty regarding the regulatory treatment of digital asset securities".

Some of the questions centre on the SEC's methodology for classifying certain tokens as securities. In contrast, others focus on topics like asset custody and trading crypto asset securities on SEC-regulated exchanges.

Last year, Coinbase lost £2 billion compared to a profit of £2.8 billion in 2021, as the exchange's pandemic-era boom gave way to crypto winter. Furthermore, Coinbase has explored avenues to diversify its revenue away from a reliance on trading fees, as retail traders wrestle with high inflation and the brunt of higher interest rates.

Coinbase Chief Legal Officer Paul Grewal stated in a blog post: "Today's Wells notice also comes after Coinbase provided multiple proposals to the SEC about registration over the course of months, all of which the SEC ultimately refused to respond to."

A Wells notice is given as a warning before the regulator makes any charges against the entity. Grewal noted that Coinbase made many registration-related proposals to the SEC over the course of several months, all of which the watchdog eventually rejected before issuing Wells notice.

The SEC reportedly issued the Wells notice regarding Coinbase's listed digital assets, Coinbase Earn, Coinbase Prime, and Coinbase Wallet. The regulator is trying to pull them down for possible violation of securities laws.

Coinbase products and services will continue to function normally in the meantime, as the inquiry is in its early phases.

Paul Grewal said: "Regulatory uncertainty in the crypto industry is getting worse. Instead of developing a regulatory framework for crypto, the SEC is continuing to regulate by enforcement only."

Coinbase CEO Brian Armstrong tweeted: "Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets."

Since forever, Coinbase and the SEC have been at odds. Even while the team was willing to participate in discussions with the SEC, they were consistently faced with a lack of enthusiasm, and the exchange slammed the watchdog for its confusion regarding the crypto sector.

The SEC is already classifying certain crypto assets as securities, and cracking down on crypto platforms for selling the same without registering with the regulator. Meanwhile, there is still no clarity on how they decided to categorise them as securities causing a dilemma in the community.

A few days back, Coinbase filed an amicus brief in support of a motion to dismiss the SEC's insider trading prosecution of former Coinbase product manager Ishan Wahi. The exchange denied selling securities but stated that if regulation was not in a "state of uncertainty" it would like to sell digital asset securities.

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Britain to become a global hub for Crypto

Partner and Head of Crypto & Digital Assets at Andersen LLP Zoe Wyatt said: "The UK has an opportunity to be on the front foot as an international centre of financial commerce as a crypto hub. However, we must increase the pace otherwise we will be left behind."

City minister John Glen stated: "The government was determined to show the UK is open for business and open for crypto businesses."

The speech made by John Glen marked the most emphatic message from the government so far in support of cryptocurrency businesses setting up shop in Britain, after criticism from the industry that Britain's stringent regulatory approach and indifference from the government were throttling innovation.

Glen added: "We see enormous potential in crypto and we are not going to lower our standards, but we are going to sustain our technologically neutral approach."

Furthermore, Rishi Sunak said last year, while still the Chancellor: "The measures we've outlined today will help to ensure firms can invest, innovate and scale up in this country."

One of the first steps will be to bring stablecoins into the British payments system, according to Sunak's statement and comments made by John Glen, a minister of state at the Treasury, at the Global Finance Summit.

Glen said: "This will enable consumers to use stablecoin payment services with confidence." On the other hand, "the government will introduce this legislation as part of an ambition to deliver a world-leading regulatory regime for stablecoins".