A judge has recently ordered the U.S. Securities and Exchange Commission (SEC) to provide a more comprehensive response to a petition submitted by Coinbase.

In July 2022, the leading U.S. cryptocurrency exchange filed a petition with the SEC, requesting the establishment of a new regulatory framework for digital assets. However, the regulator rejected the proposal in December 2023 with a brief notice, stating its disagreement with the notion that securities laws do not apply to the crypto industry.

The SEC further argued that it had other regulatory priorities and the authority to determine the timing and priorities of its regulatory agenda.

Unsatisfied with the SEC’s response, Coinbase sought a court review of the decision. The exchange also asked the court to instruct the SEC to initiate a rulemaking procedure regarding digital assets.

In a recent ruling this week, Circuit Judge Thomas L. Ambro declined to order the SEC to create new rules for digital assets. However, he did instruct the SEC to provide a more detailed response to Coinbase’s petition.

“The SEC’s decision was arbitrary and lacked sufficient reasoning. Therefore, we partially grant Coinbase’s petition. The appropriate action at this point is not to mandate the SEC to initiate rulemaking proceedings, but to remand the case to the agency for a sufficiently reasoned disposition of Coinbase’s petition.”

Paul Grewal, Coinbase’s chief legal officer, praised the ruling and compared it to a football referee being required to explain a penalty flag.

“You cannot simply throw the yellow flag and impose a penalty. You must explain why and what follows next: offsides, number 85, 10-yard penalty, repeat first down.”

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