Ex-SEC Chair: Agency Overreaching on Crypto Rules

The former Securities and Exchange Commission chair warned the agency is overstepping its authority by using enforcement actions to set policy for digital assets, creating regulatory uncertainty for token issuers, trading platforms and investors. The comments came in recent public remarks.

The official criticized the agency’s reliance on enforcement rather than formal rulemaking, saying regulators have applied existing securities law standards broadly to many crypto products and left firms unsure which activities require SEC registration or compliance.

When the agency litigates or brings enforcement cases instead of issuing clear regulations, market participants face unpredictable outcomes, he argued. That uncertainty can deter innovation and complicate capital formation because startups and exchanges cannot reliably plan compliance or product launches when legal boundaries shift case by case.

The former chair urged Congress to provide clearer statutory guidance on which digital assets should be treated as securities and called for coordination among regulators to avoid overlapping jurisdiction. He noted differences in how regulators interpret custody, trading and disclosure requirements create practical questions for custodians, broker-dealers and trading venues about which rules apply and how to implement them.

He pointed to concerns about applying the Howey test, the standard used to determine whether an investment contract is a security, to tokens that serve multiple functions such as payment, utility or governance. He noted a one-size-fits-all securities determination can produce inconsistent results and leave market participants uncertain about compliance obligations.

Industry participants have sought clearer rulemaking on custody practices, broker-dealer obligations and exchange registration. The former chair identified frictions including differing interpretations of what constitutes an exchange and when a platform must register, and recommended resolving those questions through formal rule proposals and public comment periods rather than individual enforcement cases.

In his remarks he stated, “The SEC needs to set clear rules that market participants can follow, rather than using enforcement to create policy.” He added that legislative clarification from Congress would help define the roles of the SEC and other regulators so firms can comply with predictable standards.

The SEC has increased enforcement actions against issuers and trading platforms it views as violating securities laws, citing investor protection. Some industry groups and legal experts argue the agency’s approach extends beyond the statutes as written. Lawmakers are debating whether Congress should pass specific laws for digital assets or adapt existing securities, commodities and banking statutes.

The former chair’s remarks contribute to a broader debate over how to classify tokens, set custody rules and oversee trading venues as regulators, lawmakers and market participants consider whether new legislation is needed to draw clearer legal lines.