US SEC Commissioner Visiting Korea Says "Digital Asset Regulations Must Be Clearer"

Mark Uyeda Standing Committee Member Points Out Policy Uncertainty
'Korea Blockchain Week 2024' Dialogue
Discussion on Securities Classification and Need for Regulations on Exchange and Custodian Responsibilities

Mark Uyeda, a standing commissioner of the U.S. Securities and Exchange Commission (SEC), stated on the 3rd that "there is a need to clarify regulations on digital assets." The photo shows Commissioner Uyeda and Jin Kang, Head of Legal at Hashed, attending the main conference event of 'Korea Blockchain Week 2024' from left to right. Photo by Cha Min-young

Mark Uyeda, a standing commissioner of the U.S. Securities and Exchange Commission (SEC), stated on the 3rd that "there is a need to clarify regulations on digital assets." Commissioner Uyeda, a Republican, has been one of the few voices within the SEC advocating a minority opinion against the agency's tough regulatory stance on virtual assets, alongside Commissioner Hester Peirce.

"SEC Chair Holds Powerful Regulatory Authority... Great Responsibility"

Commissioner Uyeda made these remarks during a one-on-one discussion on the theme "Exploring the Future of Virtual Asset Regulation in the U.S." at the main conference event of 'Korea Blockchain Week 2024 (KBW2024)' held at the Grand Walkerhill Seoul in Gwangjang-dong, Seoul, in the morning. Jin Kang, Head of Legal at Hashed, served as the moderator.

Uyeda said, "First, the SEC needs to clarify that it primarily regulates the securities aspect of digital assets," adding, "The SEC generally enforces legal regulations and uses the 'Howey test,' which has decades of precedent."

The Howey test is a standard used to determine whether a fundraising activity qualifies as an "investment contract," which is a type of "security." According to the Upbit Investor Protection Center, the four components of the Howey test are: ▲ deriving from the efforts of a third party, ▲ expecting profits, ▲ in a joint enterprise, ▲ by investing money.

Uyeda explained, "Common stocks, bonds, and other investment contracts are handled by the SEC, and the Supreme Court has regarded investing money in a joint enterprise with an expectation of profits from others' efforts as an investment contract, thus a security." He added, "If you meet that definition, you fall under our jurisdiction; if not, you fall under the regulatory scope of other agencies."

When asked about the internal dynamics and decision-making process between the SEC Chair and commissioners, he replied, "Except for a few individuals who report directly to the Chair, everyone else reports to SEC Chair Gary Gensler." He continued, "The Chair has significant regulatory power, including deciding what the five-member commission votes on and whether the commission exercises oversight." However, he noted that this power comes with great responsibility and requires the approval of the other four commissioners.

Bitcoin Spot ETF Raises Fairness Issues Compared to Other Commodity ETFs

Mark Uyeda, Commissioner, speaking about the SEC's digital asset regulations. Photo by Cha Min-young

Regarding the SEC's approval of the Bitcoin spot exchange-traded fund (ETF) on January 10 this year (local time), Commissioner Uyeda expressed general agreement. Previously, the SEC had denied approval of Bitcoin spot ETFs, but in August 2023, the U.S. Court of Appeals for the District of Columbia ruled that the SEC's rejection of Grayscale's Bitcoin ??ETF proposal was incorrect, and the SEC ultimately abandoned its final appeal. This marked a milestone, opening a channel for institutional funds to enter the virtual asset market, which had been dominated by individual investors.

Uyeda said, "There were dissenters within the SEC when the matter came back to us, but the five commissioners discussed it, and I agreed with the outcome." He added, "Since the court made the decision, we will implement it." He also stated, "Ultimately, I agree with the conclusion that Bitcoin spot ETPs should be treated differently from Bitcoin futures ETPs," emphasizing, "Our constant concern is whether latent crises can be manipulated, and since futures and spot markets are highly correlated, this is very important."

He continued, "What troubled me was that, in the case of Bitcoin, the ability to handle spot redemption and purchase mechanisms is less developed compared to other commodity ETP products," adding, "The good news is that we are continuously evolving." This implied fairness issues in the redemption process compared to other commodity-type ETP products approved by the SEC.

"Chair Gensler's Regulatory Agenda Does Not Include 'Digital Assets'"

He also addressed the need for regulatory rulemaking procedures and industry interaction, citing the recent Coinbase case. In December 2023, the SEC rejected a rulemaking petition submitted by the virtual asset exchange Coinbase. Shortly after the SEC's rejection was announced, Chair Gary Gensler issued an official statement expressing support, while Commissioners Uyeda and Peirce issued a counter-statement opposing the decision. They emphasized that "the process of exploring issues should include public discussion, announcements, and gathering opinions."

Uyeda said, "There is a function to petition the government, which is an official suggestion box for the public," noting, "Agencies generally accept these and decide whether to take action on specific agenda items." He added, "When opinions are received, the Chair must decide whether to include them in regulations. Chair Gensler has added more than 50 items," pointing out, "Early in this term, many agendas were included, from stock settlement to climate change, but digital assets were not included."

From the left, Woo Yeda, committee member, and Jin Kang, Head of Legal at Hashed. Photo by Cha Minyoung

He continued, "We have lived in an era of uncertainty regarding digital assets for too long," emphasizing, "From a policy perspective, it is necessary to clearly define the boundaries of what constitutes a security and what does not." This means clearer definitions are needed, from the concept of securities to the responsibilities of platforms, brokers, exchanges, and custodians.

When asked about the SEC's role in developing the digital asset economy, he said, "I have been asked, along with fellow commissioner Hester Peirce, to explain related guidelines or views regarding the SEC's regulatory agenda," stressing, "One thing the SEC can do is to say that we have a legal framework and post interpretive guidance on what it means to be a security as an investment partner and what does not." This means sharing guidance with all market participants.

"Before Establishing Digital Asset Regulatory Policies, Global Governments Must Be Examined"

When asked about the direction for future digital asset regulatory policies, he replied, "We need to look at the jurisdictions of many government authorities worldwide, not just the European Union (EU)." He added, "The U.S. has faced more difficulties in establishing regulatory policies. I believe it is not only us (the SEC) and the Commodity Futures Trading Commission (CFTC) but also several responsible regulatory agencies."

He continued, "We will need to look at many global cases," adding, "We need to observe how digital assets are handled." This implies the necessity to review policy statuses worldwide, including the EU's MiCA, the world's first virtual asset basic law, as well as South Korea, Japan, and others. In fact, on the previous day (the 2nd), Commissioner Uyeda held a one-on-one meeting with So-Young Kim, Vice Chair of the Financial Services Commission, to hear explanations about the Korean government's blockchain technology promotion plans and virtual asset regulatory policies.