SEC downsizes its crypto enforcement unit under Trump administration

It's unclear how the restructuring will affect existing legal proceedings.Key Takeaways

• The SEC is reducing the size of its crypto enforcement unit under the Trump administration.
• The restructuring is part of efforts to promote crypto growth and reduce regulatory oversight.

The US SEC is reducing the size of its Crypto Assets and Cyber Unit, which had grown to over 50 lawyers and staff under former Chair Gary Genslers leadership, according to a new report from the New York Times, citing sources familiar with the change.

Lawyers from the SECs dedicated crypto unit are being reassigned to other departments, with at least one senior lawyer moving out of the enforcement division entirely. The unit, previously known as the Cyber Unit, was strengthened in May 2022 when the SEC added 20 positions.

Reforms are underway at the US top financial agency. According to a recent report from Reuters, the SEC has implemented a new policy requiring its enforcement staff to secure approval from commissioners before initiating formal investigations, including issuing subpoenas and compelling testimony.

This shift is a departure from the previous policy where staff could start investigations independently. The change aims to ensure more measured and evidence-backed investigations but raises concerns about potential delays in addressing fraud.

The restructuring comes as part of the Trump administrations ongoing effort to reduce regulatory oversight of the crypto industry.

President Trump recently signed an executive order aimed at establishing a regulatory framework that fosters innovation and economic growth related to digital assets, including the development of dollar-backed stablecoins and the prohibition of Central Bank Digital Currencies (CBDCs).

The order also targets the creation of a working group to evaluate the potential establishment of a national digital asset reserve and to propose new regulations for the sector.

Mark Uyeda, the SEC‘s acting chair, has established a task force to review the agency’s digital asset regulations, appointing Commissioner Hester Peirce to lead the initiative. Peirce has criticized the SECs previous approach, describing it as “legal imprecision and commercial impracticality.”

The crypto task force focuses on clarifying digital assets security status, easing certain token offerings, and simplifying crypto-related product registrations. Its goal is to tackle regulatory issues in crypto-lending, staking, and custodial services, while enhancing international regulatory collaboration.

The downsizing affects a unit responsible for protecting investors in crypto markets, safeguarding securities markets from cyber threats, and enforcing securities law violations in crypto markets. The changes raise questions about pending cases, including the SECs lawsuit against Coinbase for allegedly operating as an unregistered securities exchange.

The move has drawn mixed reactions. Corey Frayer, former senior advisor to Gensler on crypto issues, criticized the decision, arguing that it removes necessary “speed limits and guardrails” from the market.

Conversely, crypto industry proponents see it as a welcome step towards a more balanced regulatory environment.