At present, U.S. policymakers are reconsidering their approach to the digital asset sector and how best to regulate it. This decision makes sense as the industry grapples with its growing pains and a changing landscape. That’s why the securities industry is currently advocating for a technology-neutral regulatory framework. They call on regulators to enact tested principles within the new digital asset sphere. This new approach emphasizes applying regulations based on the economic function of assets. It shifts the conversation from focusing on the technologies we use to make those assets and trade them.

Rethinking Regulatory Approaches

Here’s why U.S. policymakers are finally beginning to rethink their strategy. They understand that the existing regulatory structures don’t completely apply to a nascent but important digital asset space. That sector is always changing. Policymakers are nimbly looking for opportunities to avoid, adapt and improve their approaches to address the unique risks and opportunities that digital assets continue to create. Our mission is to encourage the creation of capital formation innovation, balanced with investor protection and ensuring healthy market behavior.

With the digital asset sector still being relatively new and with immense potential, we need to balance safeguarding investors while promoting innovation. Applying traditional reliance principles can provide a common sense regulatory framework that accounts for and addresses significant risks. It further encourages stability in this fledgling new asset class.

The call for a technology-neutral approach aims to prevent regulations from favoring or hindering specific technologies used in the digital asset sector. This technology-neutral approach would create a fair and open playing field in which different technologies can compete on their merits, spurring innovation and efficiency.

Industry's Push for Neutrality

The securities industry has been encouraging a technology-neutral approach. They need regulations that are clear, predictable, and applied equally to all technologies. By focusing on the economic characteristics of digital assets, regulators can create a framework that is adaptable to future technological developments.

"The determination of whether a digital asset is a security should be based upon the intrinsic economic characteristics of an asset or transaction rather than through a technology-driven approach that depends on mutable factors extrinsic to the asset or transaction." - ["investmentexecutive.com" - source]

This view is profound because it emphasizes that we over-focus on the tech that drives digital assets. It nudges us to think about their economic substance to establish what’s appropriate regulatory requirements.

Calls for SEC Reforms

The securities industry is heavily lobbying for a technology-neutral approach. In addition to these above efforts, they’re exerting similar pressure on the SEC and its leadership to make targeted reforms. These calls are intended to support the development of US tokenized securities markets and protect investors.

"The SEC should introduce targeted reforms to promote the growth of tokenized securities markets," - ["investmentexecutive.com" - source]

These reforms could include clarifying existing regulations, providing guidance on the application of securities laws to digital assets, and streamlining the registration process for tokenized securities. The securities industry has further recommended that the SEC refrain from developing new custody frameworks tailored to digital assets.