The Congressional Blockchain Caucus is clashing with the SEC. Here’s why

The culprit? Excessive paperwork.

Cochair of the caucus Minnesota Rep. Tom Emmer, sent a March 16 letter to Securities and Exchange Commission chair Gary Gensler, asking the regulatory agency to clarify its information-gathering tactics for crypto companies, and requesting that it stop asking for the same information multiple times.

“Crypto startups must not be weighed down by extra-jurisdictional and burdensome reporting requirements,” Emmer wrote in a statement on his congressional website. “The SEC must ensure that its information-seeking requests to private crypto and blockchain firms are not overburdensome, unnecessary, and do not stifle innovation.”

The struggle between Emmer and his cosigners and the SEC boils down to how much control the agency has over private crypto companies. Emmer argues that although the SEC is able to request the voluntary interviews, testimonies, and the production of documents from entities it regulates, it is overreaching in its power. He also argues that the regulatory agency is applying this power to companies and entities not under its jurisdiction.

What is the Congressional Blockchain Caucus?

The Blockchain Caucus was founded during the 2015–16 session of Congress. It currently includes four chairs and 33 members from both parties, according to its website. 

The U.S. Congress has more than 400 caucuses, or groups of members of Congress with a common legislative objective. The Blockchain Caucus advocates for “a light touch” regulatory approach to blockchain technology like cryptocurrencies and NFTs.

Because of the Blockchain Caucus’s preference for light regulation, its members have sometimes clashed with the SEC, whose chair, Gensler, has characterized crypto markets as the “Wild West.”

In their most recent spat, several members of the caucus—though, not all—argued that two forms the SEC sends to crypto companies, Form 2866 and Form 1662, ask for much of the same information, which is burdensome to companies. Form 2866 asks crypto companies to send information like verification of their assets and an assessment of their company’s risks, and Form 1662 lays out the penalties for not disclosing these details.

Emmer wrote in the letter that under the Paperwork Reduction Act of 1980, government agencies, when seeking information from the American public, “must be good stewards of the public’s time, and not overwhelm them with unnecessary or duplicative requests for information.”

The letter also questions why the SEC is investigating unregulated crypto companies with its enforcement arm when traditionally, the letter claims, it keeps its regulatory and enforcement departments separate.

Finally, the letter asks the regulatory agency for a list of voluntary document requests sent to crypto companies and related individuals over the past five years and questions whether individuals under an informal investigation have been notified. 

Under Gensler, the SEC has said little about blanket regulations for crypto and NFTs. Yet Gensler has made it clear that he has his eyes set on the industry. The SEC chair said earlier this year that he hopes the regulatory agency will start regulating cryptocurrency exchanges in 2022. Last week, President Biden’s executive order on crypto directed several federal agencies to study the drawbacks and benefits of crypto, possibly opening the door for new regulations.

Emmer said in a tweet that he has heard from many crypto and blockchain firms that
“SEC Chair @GaryGensler’s information reporting ‘requests’ to the crypto community are overburdensome, don’t feel particularly…voluntary…and are stifling innovation.”