Executive Order Could Put a Snag in Crypto Regulations

In large organizations – like, say, the federal government – examples of “the right hand not talking to the left” are common. One department begins a new project without realizing it’s working at cross-purposes with the objectives of another. Once the parties identify the conflict, they either figure out a solution or kick the decision upstairs to people higher on the food chain to sort it out.

Does the Trump administration have a communication breakdown brewing between the Office of Management and Budget and the Securities and Exchange Commission? It’s difficult to square the expansion of powers granted to the OMB in a recent executive order with the Commission’s pledge to get a handle on governing cryptocurrency.

Last month, President Trump signed a directive eliminating certain agencies’ exemptions from reporting and oversight by the OMB’s Office of Information and Regulatory Affairs. The exempted agencies have included the SEC since 1993. In effect, the order means the SEC and other agencies must vet all regulatory actions with OMB before submitting them to the Federal Register for public consumption. Moreover, the order creates additional means for the executive branch to keep its historically independent agencies in check, such as mandating they provide OMB with strategic plans and stipulating that the president and attorney general “shall provide authoritative interpretations of law for the executive branch.”

Enter the SEC, which is tasked with regulating the ever-shifting dynamics of the financial markets. In January, the agency’s acting commissioner, Mark Uyeda, installed his conservative cohort Hester Peirce as the leader of a task force responsible for standing up a regulatory regime for digital assets. According to the SEC, the project is intended to “to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”

As such, the EO raises questions regarding the likelihood of the SEC making a definitive statement about whether crypto and other digital coins fall under the agency’s purview. The potential impact of the EO extends into securities law enforcement against cryptocurrency purveyors, too: It puts the agencies’ stances on litigation in the hands of the president and attorney general. (To be fair, the SEC already appears to be standing down on the crypto cases initiated during the Biden administration.)

While there may be potential for a conflict between the OMB and the SEC regarding crypto regulation, it is likely that any such dispute will remain theoretical. The White House has given the OMB new authority to ensure the rulemaking process aligns with its objectives. However, the political appointees running those agencies wouldn’t have their jobs if they weren’t aligned with these goals. Perhaps the need to get the approval of OMB will create minor delays in releasing the hotly anticipated crypto rules, it is unlikely to alter their final impact.