Key Takeaways
Ripple argues that the SEC should focus on existing statutes and defer new crypto regulations to Congress.
Ripple criticizes the previous SEC administration’s application of the Howey test as distorted and complex.
Ripple has called on the SEC to stick to existing statutes and let Congress establish new legal frameworks for crypto. According to the firm, the regulator should focus on fraud prevention, using laws already in place, and leave the market structure definitions to the legislative body.
“Congress is actively considering market structure and stablecoin legislation. It is the role of policymakers to establish new legal standards governing crypto assets,” Ripple stated in a March 21 letter to the SEC.
Ripple asserted that the SEC’s authority is limited to securities as defined by existing statutes and should not be expanded unilaterally.
“As the Crypto Task Force appears to recognize, the SEC should return to first principles and, within the bounds of existing statutes, strive to provide straightforward market guidance that has been absent to date,” Ripple stated in its letter.
“Agencies have only those powers given to them by Congress, and enabling legislation is generally not an open book to which the agency may add pages and change the plot line,” the firm added.
The company praised the SEC’s recent statement on meme coins as a model approach, noting its clear articulation based on existing law that meme coins fall outside federal securities laws and SEC jurisdiction.
SEC Commissioner Hester Peirce also said in a February interview with Bloomberg Crypto that many meme coins likely fall outside the SEC’s regulatory scope.
Ripple criticized the previous SEC administration’s application of the Howey test, claiming it was “weaponized” and “distorted” to expand SEC jurisdiction.
The company pointed out several issues with the SEC’s past interpretations, including how “speculation” was improperly substituted for “investment” and how decentralization became a concept for assets to “magically morph from security status to non-security and back again.”
Ripple stressed the need for the SEC to adhere to the original intent of the Howey test and existing securities laws—an enforceable agreement where one party invests and another promises efforts for profit. Without this, a token sale isn’t a security.
For yield-generating arrangements, Ripple argued that returns generated algorithmically by protocols outside any party’s control should not be considered securities, as they fundamentally differ from profits earned through third-party managerial efforts.
The company also voiced support for Commissioner Peirce’s regulatory sandbox proposals but suggested they should be implemented only after Congress establishes clear market structure legislation and regulatory oversight delegations.
Ripple’s letter is part of the ongoing dialogue between the crypto industry and the SEC, specifically the SEC Crypto Task Force.
The regulators are gathering perspectives from industry players on how to regulate digital assets. By far, representatives from numerous entities, such as Coinbase, Nasdaq, a16z, and Robinhood, have submitted their written input to the SEC.
Ripple’s letter comes after CEO Brad Garlinghouse declared Wednesday that the SEC is withdrawing its enforcement bid against the company, ending the years-long legal battle that caused approximately $15 billion in losses for XRP holders.
