Coinbase Global Inc.’s pursuit of legal action against securities regulators for their implied stalling on the company’s crypto rulemaking request is not being overlooked by other corporations and advocacy groups. Coinbase has taken their plea to an appeals court, lodging a request for the Securities and Exchange Commission (SEC) to respond to a submission for rulemaking they launched last year. The petition was brought to bring to light which digital assets the SEC is planning to regulate.
The growing interest in Coinbase’s case could catalyze other corporations, civil rights, and interest groups to petition the SEC and similar organizations for amendments to federal regulations. Recently filing unreplied requests similar to Coinbase, several manufacturing groups, including the National Association of Manufacturers (NAM), took legal routes when their request for clarity on a securities disclosure requirement was ignored. The SEC finally responded after legal proceedings were initiated, granting the required exemption.
Petitioning for rulemaking and then initiating legal proceedings for a response has usually been seen as an inefficient method to achieve worthwhile responses. However, this viewpoint may be transforming as certain courts begin to scrutinize regulators like the SEC with more suspicion.
The federal Administrative Procedure Act allows any stakeholder to request rulemaking from an agency, with the SEC having received 18 petitions to date in 2023, continuing the trend of previous years. While the capability to submit requests for new regulations and rule changes is potentially potent, it remains a “grossly underutilized tool”, says Kara Rollins of the New Civil Liberties Alliance (NCLA), a Washington, D.C.-based civil rights group.
In a recent study, Rollins found that out of approximately 80 petitions filed from January 2018 to May 2023, the SEC has only substantially replied to five. Such neglect isn’t a recent issue, as shown by a 2014 report from the Administrative Conference of the US (ACUS).
In light of these ongoing issues, if Coinbase manages to come out on top, it may indeed “send a signal to agencies” to not disregard these petitions for rulemaking, says Rollins. If held accountable, these agencies will be forced to stop brushing these requests under the rug.
Coinbase’s case is ongoing in a time of highly concentrated scrutiny from businesses and courts regarding the way financial regulators conduct their business. With this in mind, a Third Circuit order favoring Coinbase could very well incite more interest in the rulemaking petition process, despite the potential for long administrative processing times. As such, we can expect additional court cases over assumed inaction which will possibly address unanswered questions about the process, including what is deemed as an acceptable response from agencies.
The Coinbase case is In Re: Coinbase Inc., 3d Cir., No. 23-1779.