Crypto exchange Ripple asks the SEC to focus on setting clear regulatory guidance for crypto companies

According to Ripple, the past commission's actions created confusion for the crypto industry, as the agency enforced standards that were not written into law.

Crypto exchange Ripple has asked the U.S. Securities and Exchange Commission (SEC) to focus on setting clear regulatory guidance for crypto companies and abandon past enforcement strategies.

In its response to the SEC's request for information (RFI), Ripple urged the commission to prioritize providing law-first clarity for crypto companies, diverging from the previous administration's actions, which, according to Ripple, only generated confusion and went against the goal of the SEC's Crypto Task Force.

The task force aimed to establish clear criteria for determining whether an asset qualifies as a security or is part of an investment contract.

"The past administration's actions created confusion for the crypto industry, as the agency enforced standards that were not written into law," Ripple said in a statement.

"Those actions were also inconsistent with the goal of the SEC's own "Crypto Task Force to "set forth clear criteria for determining which assets are covered by Section 7 of the Securities Act and which assets are covered by the Section 3 unclaimed property provisions."

However, the SEC does not have jurisdiction over most digital assets and their transactions to date, and it can only regulate "securities" and their transactions as defined by the Securities Act, the company noted.

"Congress has not delegated to the SEC the authority to create new categories of "unclaimed property" or to regulate "crypto assets" in the abstract," Ripple said.

Moreover, the crypto firm argued that staking and yield on public networks differ from securities and asked them to clarify the policies.

"We urge the SEC to provide clear guidance on the types of DeFi programs and activities that would and would not be consistent with Section 3 of the Securities Act," Ripple said.

Additionally, the company reaffirmed its backing for safe harbor provisions and regulatory sandboxes, an approach that has worked well in the UK, Switzerland, and Singapore.

The exchange believes the Token Safe Harbor Proposal could allow blockchain projects to grow without being too quickly tagged as securities.

"We urge the SEC to adopt the Token Safe Harbor Proposal or similar proposals that would provide a limited exemption from registration for new tokens and a broad exemption for use of the tokens in a manner that does not constitute an offer or sale of a security," Ripple said.

However, Ripple accused the SEC of distorting some of the legal requirements for exchanges, including the application of the Howey Test. The crypto company claimed that the agency misused the test to classify digital assets as securities, even without binding agreements or profit participation requirements.

"The SEC has misused the Howey Test to classify digital assets as securities without the presence of a common enterprise or any binding agreements for profit sharing, as required by Supreme Court and federal court cases," Ripple said.

According to Ripple, this approach only created uncertainty and hindered blockchain projects from launching or expanding in the U.S.

The exchange, however, agreed with the SEC's decision to categorize meme coins as non-securities, claiming it's a step toward clear regulation. Moving forward, the firm believes that all future regulation should be based on existing laws and not on arbitrarily constructed norms that could unsettle the markets.