Trump versus the “Enforcement Regulation” in the Context of Cryptocurrencies

What is “Enforcement Regulation” or “Regulation by Enforcement”?

“Enforcement Regulation” or “regulation by enforcement” refers to a strategy in which a regulatory agency, such as the SEC (the American financial regulator), establishes regulatory guidelines and standards primarily through enforcement actions against individuals or companies that are allegedly in violation of existing laws.

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What Elements Characterize “Enforcement Regulation”?

1. Reactive Approach: Regulation is developed in response to alleged violations, rather than establishing clear rules beforehand.
2. Lack of “Ex Ante” Clarity: Companies and individuals may struggle to fully understand regulatory expectations until enforcement actions are taken.
3. Uncertainty for the Industry: The lack of clear rules can create uncertainty and hinder innovation and investment, as companies fear incurring unexpected enforcement actions.
4. Potential for Unequal Treatment: Enforcing the law through specific cases can lead to unequal treatment, as different offenders may face different consequences.
5. Debate over Legitimacy: Critics argue that “regulation by enforcement” can be unfair, as regulated parties do not have clear notice of the rules they are expected to follow.

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Transparency in cryptoasset transactions is one of the fundamental pillars of the Cryptoasset Markets Regulation (MiCA).

Trump and “Enforcement Regulation” in the Context of Cryptocurrencies

In the context of cryptocurrencies, the Trump administration has explicitly stated that it wishes to move away from this approach.

The SEC under previous administrations has been criticized for using “regulation by enforcement” in the digital assets space, creating confusion about which activities are legal and which are not.

The new administration states that it advocates for providing “clear and technology-neutral regulations” to offer greater certainty to companies in the sector.

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Guide for Crypto-Asset Investors and Providers: Understanding Suitability in MiCA

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