Key takeout
Ripple argues that the SEC should focus on existing laws and postpone new crypto regulations to Congress. Ripple criticizes the previous SEC administration’s application of Howey Test as distorted and complicated.
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Ripple has called on the SEC to stick to existing laws and to establish a new legal framework for crypto. According to the company, regulators should focus on fraud prevention, use already in place laws and leave the definition of market structure to legislators.
“Congress is actively considering market structure and stupid laws. It is the role of policymakers to establish new legal standards for managing crypto assets,” Ripple said in a March 21 letter to the SEC.
Ripple argued that SEC’s powers are limited to securities defined by existing law and should not be extended unilaterally.
“Because it appears to be aware of the Crypto-Task Force, the SEC is returning to its First Principles and strives to provide unprecedented outspoken market guidance within the scope of existing laws,” Ripple said in the letter.
“The agency has only those powers granted to them by Congress, and enabling the law is not generally a public book where the agency may add pages and change the plotline,” the company added.
The company praised the SEC’s recent statement on Meme Coins as a model approach, pointing to clear and clear statements based on existing laws that Meme Coins is outside the federal securities law and SEC jurisdiction.
SEC Commissioner Hester Perth also said in a February interview with Bloomberg Crypto that many memecoins are likely outside the SEC’s regulations.
Ripple criticized the application of the Howey Test by the previous SEC administration, claiming it was “weaponized” and “skewed” to expand SEC jurisdiction.
The company pointed out several issues with the SEC’s past interpretation. This pointed to how “investment” was inappropriately replaced for “investment” and that decentralization has become the concept of assets “from security status to non-security and then back again.”
Ripple highlighted the need for the SEC to comply with the original intent of Howey Test and existing securities laws. Without this, token sales is not security.
Due to the yield arrangement, Ripple argued that returns generated algorithmically by protocols outside the control of the parties should not be considered securities as they are essentially different from those earned through third party management efforts.
The company also expressed support for Commissioner Perth’s proposal for a regulatory sandbox, suggesting that it should only be implemented after Congress has established a clear market structure legislation and regulatory oversight delegation.
Ripple’s letters are part of an ongoing dialogue between the crypto industry and the SEC, particularly the SEC Crypto Task Force.
Regulators are gathering perspectives from industry players on how to regulate digital assets. Representatives of numerous entities such as Coinbase, Nasdaq, A16Z, and Robinhood have submitted written input to the SEC.
Ripple’s letter comes after CEO Brad Garlinghouse declared Wednesday that the SEC had withdrawn its enforcement bid against the company, ending a long-standing legal battle that caused a loss of around $15 billion for XRP holders.
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