A judge has recently ordered the U.S. Securities and Exchange Commission (SEC) to provide a more comprehensive response to a petition from Coinbase. In July 2022, the leading U.S. cryptocurrency exchange submitted a petition to the SEC, urging the creation of a new regulatory framework for digital assets. However, the regulator rejected the proposal in December 2023, with a brief notice stating its disagreement with the notion that securities laws are not applicable to the crypto industry. The SEC also argued that it possessed the authority to determine the timing and priorities of its regulatory agenda, citing other regulatory objectives. Dissatisfied with the response, Coinbase sought a court review of the SEC’s decision, while also requesting the court to compel the SEC to initiate a rulemaking proceeding on digital assets. In a recent ruling, Circuit Judge Thomas L. Ambro declined to order the SEC to establish new rules for digital assets. However, he instructed the SEC to provide a more detailed explanation of its response to Coinbase’s petition. He stated, “The SEC’s order was arbitrary and capricious because it was conclusory and insufficiently reasoned. We thus grant Coinbase’s petition in part. The remedy is not at this stage to order the SEC to institute rulemaking proceedings but to remand to the agency for a sufficiently reasoned disposition of Coinbase’s petition.” Coinbase’s Chief Legal Officer, Paul Grewal, commended the ruling, likening it to a football referee being required to explain a penalty flag. He emphasized the importance of providing a clear explanation for decisions and the subsequent actions that will be taken.
