US law favors institutions and puts retail investors at risk – Rep. Torres.
US law favors institutions and puts retail investors at risk - Rep. Torres.
The Ripple XRP Court Ruling: A Turning Point for the Blockchain Industry
On July 13, 2023, United States District Court Judge Analisa Torres made a significant ruling regarding Ripple’s XRP token. She declared that XRP should not be considered a security when sold on retail digital asset exchanges. This ruling has far-reaching implications for the blockchain industry, providing clarity on the legal status of cryptocurrencies and challenging the U.S. Securities and Exchange Commission’s (SEC) approach to regulating the space.
Stuart Alderoty, Chief Legal Officer at Ripple, hailed the ruling as a victory not just for Ripple but for the entire crypto industry in the United States. He stated that the SEC’s theory that a token can be classified as an investment contract and, therefore, a security, no longer holds legal support. Alderoty also pointed out that the SEC’s previous settlements in the crypto space were largely with entities that lacked the means to fight back, undermining the regulator’s credibility in the industry.
However, New York Representative Ritchie Torres offered a contrasting perspective on the Ripple decision. He highlighted what he saw as a cruel irony in securities law, noting that it protects institutional investors while leaving retail customers exposed. Torres emphasized the urgent need to pass a market structure bill to safeguard average American consumers in the crypto space. His remarks shed light on the broader regulatory landscape and the challenges posed by asymmetrical protection for different types of investors.
To further explore the implications of the XRP court ruling and discuss the way forward, Cointelegraph interviewed Representative Torres.
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The Meaning Behind the XRP Court Ruling
Torres explained that the Southern District of New York’s decision made two critical distinctions. Firstly, it differentiated between securities and assets that are part of investment contracts, classifying only the latter as securities under the Howey test. This ruling established what Torres referred to as the “Torres Rule,” asserting that digital assets themselves do not qualify as securities to be sold as investment contracts.
Secondly, the ruling drew a line between institutional buyers and retail buyers. If an institutional buyer purchases a crypto token directly from an issuer or promoter, the transaction is considered a security offering. However, if a retail customer buys a crypto token on an exchange, the transaction falls outside the scope of securities law and is not an investment contract.
The Urgency for a Market Structure Bill
When asked about the lack of protection for retail investors, Representative Torres emphasized the need for a market structure bill to address this issue. He revealed that the U.S. House Financial Services Committee is currently considering two bills—one focusing on stablecoins and the other on market structure. Torres believes that combining the Ripple decision with a market structure bill would create a robust yet practical framework for regulating digital assets.
According to Torres, the Ripple decision shields the crypto industry from arbitrary enforcement actions and the SEC Chair Gary Gensler’s approach of regulation by enforcement. However, a market structure bill would specifically protect retail investors from genuine bad actors in the crypto space.
Advocating for a Crypto Market Structure Bill
Representative Torres has been actively engaged in negotiations with Republicans in the House Financial Services Committee to ensure the development of a well-crafted crypto market structure bill. He recognizes that legislation is indispensable in providing clarity and protecting retail customers. Torres also emphasized the importance of remaining neutral towards the merits of cryptocurrency, stating that policymakers should focus on creating a regulatory framework for digital assets while safeguarding investors and consumers.
Thoughts on Cryptocurrency and Blockchain Technology
When asked about his views on cryptocurrency and blockchain technology, Representative Torres expressed his belief in their potential to revolutionize payment systems and enable the development of Web3—the next generation of the internet. However, he stressed the necessity of a regulatory framework and clarity for these technologies to thrive. Torres emphasized that compliance relies on clarity and called for a balanced approach to regulation.
Final Thoughts: Legislation for Retail Investor Protection
In conclusion, the Ripple XRP court ruling marked a significant milestone for the blockchain industry, challenging the SEC’s regulatory approach and providing clarity on the legal status of cryptocurrencies. While it was a victory for Ripple and the broader crypto community, Representative Torres emphasized that the lack of protection for retail investors remains a concern. He highlighted the need to protect crypto innovators from enforcement actions while prioritizing legislative efforts to safeguard retail customers. The urgent push for a market structure bill reflects the growing recognition of the importance of comprehensive regulation in the crypto space. By striking a balance between innovation and investor protection, the blockchain industry can continue to grow and flourish.
