L’exchange crypto Kraken dismissed the SEC’s lawsuit, calling it a “troubling precedent” of overreaching authority.

Specifically, the exchange claims that the lawsuit filed by the agency does not have any restrictive principles and gives the agency broad authority that it believes is excessive.

Let’s see all the details below.

Crypto exchange Kraken dismisses SEC lawsuit

As anticipated, the Kraken crypto exchange has filed a archiving request to dismiss a lawsuit filed in November by the U.S. Securities and Exchange Commission (SEC), arguing that it sets a “dangerous precedent” for the agency’s mandate.

On February 22, Kraken filed its motion to dismiss in federal court in San Francisco.

In a related blog post, Kraken said the SEC’s theory – that an investment contract can exist without post-sale obligations and without issuer-buyer interactions – “has no limiting principle.”

It would also grant the agency too much authority over trading, potentially paving the way for private securities law claims.

The SEC sued Kraken last year, accusing it of illegally earning millions of dollars from “cryptocurrency securities” transactions and providing “exchange, broker, dealer and clearing agency” services without required registration.

Kraken was also accused of deficient internal controls, which resulted in the mixing of dthe 33 billion dollars of client assets with company funds.

Kraken argued in its motion to dismiss that the SEC did not prove that the cryptocurrencies traded on its platform were “investment contracts” under U.S. securities laws.

This is because there was no agreement between Kraken customers and the cryptocurrency issuers.

The exchange also said that the SEC’s definition of a security could lead to “any simple sale of assets for purported speculative purposes” being considered a security and that securities laws have never given the agency such broad authority.

Kraken invoked the doctrine of big questions, a decision of the Supreme Court of 2022, arguing that Congress should pass laws rather than delegate authority to regulators.

Kraken introduces new information requests: impacts on crypto in the UK

Kraken recently implemented a series of new requests of information for its customers in the UK, particularly regarding transactions related to self-custody wallets.

In an email communication sent to some users, the exchange warned that failure to submit the requested information could lead to the temporary block of accounts until the necessary information is provided.

This announcement has raised significant questions regarding privacy, regulation, and the future of cryptocurrency transactions.

The request for information represents a substantial change compared to the traditional approach of cryptocurrency exchanges, which usually do not require such specific details from the owners of self-custodial wallets.

To ensure the authenticity of communications, it has been confirmed that customers must verify ownership of their self-custodial wallets used in transactions with Kraken.

Regulatory pressure, transparency and decentralization

The above has raised concerns among cryptocurrency enthusiasts. Specifically with some experts pointing to this change as the start of a period of increased surveillance in the UK.

Alongside this move by Kraken, it is interesting to note that the timing of the announcement coincides with wider regulatory developments in the European Union.

The recently updated Funds Transfer Regulation (FTR) imposes similar requirements for transactions involving service providers in the EU, and will be fully implemented by the end of 2024.

Kraken, in response to these new regulations, has taken proactive measures to maintain compliance in the UK and ensure greater oversight in the cryptocurrency industry.

Critics of the industry argue that the increase in regulatory pressure it threatens the fundamental principles of decentralization and anonymity, on which the essence of cryptocurrencies is based.

On the other hand, supporters believe that such rules will help identify illegal activities such as money laundering and terrorist financing.

In fact, they claim that this will improve the transparency, verifying the identity of users and monitoring transactions, thus leading to greater trust and accountability in the cryptocurrency ecosystem.

Source: https://cryptonomist.ch/2024/02/23/exchange-crypto-kraken-affronta-sec/

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