During the TokenizeThis 2024 conference in Miami on May 9, Troy Paredes, a former commissioner at the United States Securities and Exchange Commission (SEC) from 2008 to 2013, raised concerns about the SEC's approach to defining digital assets as securities. Paredes highlighted a potential overreach by the regulator in its classification of certain digital assets.

Paredes noted that SEC Chair Gary Gensler appeared to convey a sense of clarity regarding the commission's stance on what constitutes a security under the Howey test. However, he emphasized that there remains a significant "jurisdictional question" regarding digital assets that the SEC must address. Paredes pointed out that if a digital asset does not meet the criteria to be classified as a security, it falls outside the scope of the federal securities laws within the SEC's jurisdiction.

Expressing his views further, Paredes suggested that the SEC has adopted a broad interpretation of what qualifies as a security under the Howey test. He highlighted a prevalent focus, both within and outside the SEC, on categorizing certain tokens as securities without adequately considering how to tailor the regulatory framework to accommodate digital assets. Paredes emphasized the prevalent uncertainty among firms striving to navigate the evolving regulatory landscape.

Criticism has been directed at the SEC for its perceived "regulation by enforcement" approach towards crypto firms offering tokens or crypto-related services to U.S. residents. The commission's legal actions against prominent entities such as Binance, Kraken, Ripple, and potentially Robinhood, have drawn scrutiny. These actions have spurred a response from lawmakers seeking to curtail the SEC's authority over digital assets. Notably, a majority in the U.S. House of Representatives voted to overturn an SEC Staff Accounting Bulletin concerning banks' custody of customers' digital assets, prompting President Joe Biden to indicate his intention to veto the bill.