In a federal court in San Francisco on February 22, Kraken filed its motion to dismiss the SEC lawsuit.

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

The exchange claims that the lawsuit filed by the agency does not have any restrictive principles and gives the agency broad authority that it considers excessive.

Cryptocurrency Exchange Kraken Dismisses SEC Lawsuit

Crypto exchange Kraken has filed 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.

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 principles.” It would also give the agency too much authority over transactions, potentially paving the way for lawsuits under private securities law.

The SEC sued Kraken last year, accusing it of illegally making millions of dollars from trading “cryptocurrency securities” and providing “exchange, broker, dealer and clearing agency” services without required registration. Kraken was also accused of poor internal controls, which resulted in $33 billion of customer assets being mixed with company funds.

Kraken argued in its motion to dismiss that the SEC failed to prove that cryptocurrencies traded on its platform were “investment contracts” under US securities laws. This is because there was no agreement between Kraken customers and 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 big questions doctrine, a 2022 Supreme Court decision, arguing that Congress should pass laws instead of delegating authority to regulators.

Kraken Submits New Information Requests: Impact on Cryptocurrencies in the UK

Kraken recently implemented a number of new information requests for its customers in the UK, particularly in relation to transactions involving self-custody wallets.

In an email communication sent to some users, the exchange warned that failure to submit the requested information could lead to temporary blocking of accounts until the necessary information is provided. This announcement has raised significant questions about 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 generally do not require such specific details from self-custodial wallet owners.

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

Regulatory Pressure, Transparency and Decentralization

Some experts point out that the change described above is the beginning of a period of increased surveillance in the United Kingdom. The timing of the announcement coincides with broader 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.

Industry critics argue that the increase in regulatory pressure 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 transparency, verify the identity of users and monitor transactions, which generates greater trust and responsibility in the cryptocurrency ecosystem.

By Leonardo Perez


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