SEC’s Lone Republican Warns of Threat to Crypto DeFi Platforms in New Agency Plan

(Bloomberg) -- The lone Republican on the U.S. Securities and Exchange Commission is warning a recent proposal that would add oversight to systems for trading government securities could also give officials sweeping new powers to scrutinize digital-asset platforms.

Hester Peirce, who favors a light-touch approach for virtual currencies, says that despite not mentioning crypto once, a 654-page plan released last week by the SEC may threaten the industry's decentralized finance trading platforms. Peirce opposed putting the regulation out for public comment, while the commission's three Democrats, including Chair Gary Gensler, voted to do so.

“The proposal includes very expansive language, which, together with the chair's apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms,” Peirce said in an e-mailed statement. “The proposal could reach more types of trading mechanisms, including potentially DeFi protocols.”

A spokesperson for Gensler declined to comment on Peirce's concerns and referred to the chair's statement when the commission was considering the proposal. The plan would extend existing regulations to more platforms that trade Treasuries and other government securities, which would “promote resiliency and greater access in the Treasury market,” Gensler said at the time.

Read More: Crypto Exchanges Will Face More Scrutiny From SEC, Gensler Says

DeFi allows users to trade, borrow and lend digital assets without having to go through an intermediary. The platforms, which surged in popularity in the past year, have drawn the ire of financial regulators.

Meanwhile, Gensler has frequently stated that he thinks many digital assets are likely securities and therefore fall within his agency's purview. He's also been outspoken about wanting crypto exchanges to register with the SEC -- indicating that he plans to closely scrutinize those that don't. 

The SEC says that its Jan. 26 rule proposal is meant to close a “regulatory gap” created by market participants using platforms that aren't registered as exchanges or brokerages to trade all types of securities. The regulation, which the agency described as a means for improving investor protections, would force those “communication protocol systems” to register. 

The parent company of Bloomberg News offers a fixed-income trading platform, as well as derivatives execution management systems. 

After the commission receives comments on its proposal it must hold another vote before the regulations become final.

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