Former SEC lawyers say the agency’s crypto tokenization fix won’t last
The U.S. Securities and Exchange Commission is preparing to grant tokenization projects temporary regulatory relief through an exemption from securities laws, but former SEC officials say this approach won’t provide the durable policy framework the crypto industry has long sought. Chairman Paul Atkins’ agency is opting for a mid-level authority grant rather than pursuing formal rulemaking, a choice that could leave the sector vulnerable to reversal under future administrations.
SEC Commissioner Hester Peirce confirmed the agency’s direction in recent comments to CoinDesk. “It doesn’t have to be done as a rulemaking,” she said. “We can do it as a rule, but we don’t have to do it as a rule.” The innovation exemption, described by Atkins in March as “limited in time and scope,” would allow certain tokenized securities to trade on blockchains as a testing ground for developing longer-term regulatory frameworks.
The decision to pursue an exemption rather than formal rulemaking represents a significant departure from what crypto advocates have requested. Formal rulemaking involves multiple rounds of public comment, revisions and a more rigorous process that carries greater legal weight. An exemption, by contrast, relies on the SEC’s existing authority to grant relief from securities laws, a power that legal experts say could theoretically be easier to overturn than a congressionally-backed statute.
Charles Riely, a former assistant regional director in SEC enforcement now at Jenner & Block, acknowledged the tension between the two approaches. “The end goal is ultimately a statute or rule that provides certainty,” he said. “The question is whether the innovation exemption can be a step toward that.” Riely added that given growing participation in digital asset markets, it would be difficult for a future administration to reverse the work and bring enforcement cases where investor harm is absent.
See also: EUR/USD Weekly Analysis: Dollar Resilience Tests Euro Recovery Bid at 1.1600
Thoreau Bartmann, a lawyer at K&L Gates who previously served as co-chief counsel of the SEC’s Division of Investment Management, suggested the exemption route may actually make practical sense. “The exemptive route might actually make more sense for the commission, because it’s basically saying you, crypto, don’t have to follow these rules until we get some sort of durable grant of rulemaking authority,” he explained. One reason the SEC may be avoiding formal rulemaking is the lack of explicit crypto authority in existing securities laws.
Patrick Daugherty, a former SEC lawyer now at Foley & Lardien who represents crypto interests, noted that formal rulemaking requires at least 12 to 18 months to complete. Even after rules are finalized, reversing them demands a lengthy process of issuing notices and gathering public comments. This follows a pattern seen in Wall Street Advisers’ Shift Focus to Stablecoins and Tokenization Over Bitcoin, where institutional adoption depends heavily on regulatory clarity.
Daugherty argued that a future SEC commission would face significant practical obstacles to reversing policies that have created economic value. “It would be hard-pressed to reverse policies that would destroy the economic value created by the new products and services, once introduced and seasoned for a while,” he said.
The SEC’s crypto policy work has historically relied on interim, staff-level positions and statements rather than formal commission action. These approaches carry minimal legal weight and could be easily swept away by new leadership. Exemptions represent a step up in authority, though they still fall short of the permanence that formal rulemaking or congressional legislation would provide.
See also: Wall Street Advisers Shift Focus to Stablecoins and Tokenization Over Bitcoin
Ashley Ebersole, chief legal officer of Sologenic and former senior counsel at the SEC, emphasized that legislation remains the gold standard for institutional confidence. “Legislation is the only way of obtaining the permanence demanded by some players to enter the crypto space or offer certain products in the U.S.,” she said. Data from CoinGecko shows tokenized asset markets continue expanding despite regulatory uncertainty.
Chairman Atkins has acknowledged the SEC’s limitations. Speaking at an industry event in April, he stated, “We really need to have Congress speak to this area.” He noted that the agency’s legal foundation still rests on 1930s-era law, making congressional action vital to future-proof emerging technologies.
The SEC’s tokenization exemption is expected to address how third-party tokens interact with underlying securities, how purchasers are identified in secondary sales, and how voting rights and dividend distributions function on blockchains. These technical details will shape whether traditional financial firms and institutional investors gain sufficient confidence to deploy capital at scale.
If you’re reading this, you’re already ahead. Stay there, by joining the…
Discover more from Dipprofit
Subscribe to get the latest posts sent to your email.
