The legal team of the crypto exchange Kraken has urged a court to reject the SEC’s requests, arguing that they could lead to a “significant overhaul” of the US financial regulatory system.
At the center of the issue is the debate on the SEC’s jurisdiction regarding the cryptocurrencies listed by Kraken. Let’s see all the details below.
Summary
Crypto news: Kraken claims that SEC requests could destabilize the entire financial system
As anticipated, Kraken, a crypto exchange, has asked a US court to dismiss the requests of the Securities and Exchange Commission (SEC).
Specifically arguing that they could cause a “significant reshuffling” of the financial regulatory framework in the United States.
Kraken’s request, filed with the Northern District of California court, comes in response to the SEC citation issued last November.
The company accused the exchange of not registering as a broker, clearinghouse, or exchange.
The SEC had initiated its legal action against Kraken a few months after resolving a previous case related to the exchange’s staking activity.
In February 2024, Kraken asked to dismiss the SEC lawsuit, arguing that the cryptocurrencies mentioned in the accusation should be considered commodities rather than securities.
However, last month, the SEC filed a 39-page response to Kraken’s motion to dismiss, arguing that the enforcement action clearly falls within its jurisdiction, as established by Congress.
Jurisdiction and regulation: the dispute between Kraken and the SEC
The SEC document, filed in April, states that the agency was created to enforce securities laws and exchanges, including registration requirements for securities intermediaries.
The SEC claims to follow its mandate by applying the Howey test, which determines what constitutes a security. This is based on four criteria: an investment of money in a common enterprise, with an expectation of profits generated by the efforts of others.
The SEC rejects the idea that it is assuming new powers and emphasizes that Congress does not need to enact specific laws for every new technology.
Kraken’s lawyers have replied that the SEC is unable to meet the additional criteria of the Howey test.
In particular arguing that their case could lead to an undue expansion of the SEC’s jurisdiction, turning activities that have never been subject to its authority into objects of regulation.
A change so radical in the regulatory structure, they say, should be discussed in Congress and not decided by the courts. Judge William H. Orrick is tasked with examining the issue on June 12.
Kraken expands in Germany: partnership with DLT Finance
Kraken has recently announced a new collaboration to serve customers in Germany, expanding its presence in European markets.
The partnership has been established with DLT Finance, a company licensed by BaFin, through its brands DLT Securities GmbH and DLT Custody GmbH. This agreement aims to facilitate access to digital assets for German users.
Germany and Europe have become epicenters of cryptocurrency adoption, with several German cities showing interest in the halving of Bitcoin (BTC) and the cryptographic banking sector dominated by European providers.
David Ripley, CEO of Kraken, highlighted that over 5% of Germans own cryptographic assets, emphasizing the growing demand in the country:
“With this partnership, German customers gain access to cryptocurrencies with the certainty of trading with a best-in-class offer as Germany transitions to a new pan-European regulatory framework.”
The collaboration is part of a regulatory evolution context in the European Union, with the introduction of the Markets in Crypto Assets Regulation (MiCA), which provides a detailed framework for digital asset service providers.
After three years of development, MiCA establishes rules for the issuance of stablecoins and reserve requirements. The full implementation of the new rules is expected by December.
This new agreement follows other initiatives by Kraken to expand in Europe.
Among which the acquisition of the Dutch cryptocurrency broker Coin Meester BV and the approval of the electronic money institution by the Irish central bank, allowing the exchange to operate in different countries, including Ireland, Italy, Spain, and Belgium.
