Robinhood’s Chief Legal Officer Daniel Gallagher criticized the US Securities and Exchange Commission’s (SEC) approach to crypto regulation in written testimony submitted for a Sept. 18 hearing before the House Financial Services Subcommittee on Digital Assets.
Gallagher detailed Robinhood’s efforts to comply with SEC regulations, citing over a dozen meetings and calls over 18 months. However, despite these efforts, the company received a Wells notice from the SEC’s Enforcement Division in May.
He pointed out that the SEC staff were often unresponsive to Robinhood’s requests for guidance on moving forward with its registration proposal.
‘Scorched earth approach’
Gallagher labeled the SEC’s strategy a “scorched earth” approach that negatively impacts US crypto investors.
He argued that the lack of clear guidance on which digital asset transactions qualify as investment contracts remains a fundamental issue. This uncertainty has led to multiple lawsuits by the SEC against crypto firms, further hampering industry progress.
Gallagher added that “regulation by enforcement” harms American consumers seeking greater access to digital assets. It also stifles innovation in blockchain and erodes the US’s competitive edge in global digital asset markets.
He contrasted the US with Europe, where the Markets in Crypto-Assets (MiCA) regulation provides a unified framework for crypto markets, enabling innovation to flourish overseas.
Next steps for SEC
Gallagher suggested that the SEC could use its existing authority under Section 36 of the Securities Exchange Act of 1934 to create a framework for registering and overseeing platforms that facilitate trading in digital assets deemed investment contracts.
He noted this rulemaking could address key issues such as registration, consumer protections, custody requirements, and transaction reporting. These measures, he added, could have mitigated some of the damage caused by the FTX collapse in 2022.
Congress roles
Gallagher emphasized the need for Congress to establish a clear, comprehensive regulatory framework for digital assets.
He argued that only Congress can provide the long-term regulatory clarity needed to ensure token issuers, exchanges, and other market participants can operate without fear of constant enforcement actions.
Such clarity, according to Gallagher, is crucial for maintaining the US’s leadership in responsible blockchain innovation and well-regulated digital asset markets.
