Crypto lobbyists are expressing strong opposition to the SEC's recently launched Consolidated Audit Trail (CAT) database, claiming it unfairly targets blockchain users.
The CAT is a comprehensive data collection system that gathers all trading information across U.S. securities markets, sparking concern among those in the crypto space.
The CAT was developed under SEC Rule 613, introduced after the financial crisis to enhance the SEC's market oversight and prevent fraudulent activities.
This database captures trading data from various entities, including securities exchanges, broker-dealers, and FINRA members, to enable the SEC to monitor market activities closely.
Although Rule 613 does not explicitly mention cryptocurrencies or digital assets, the SEC’s stance that crypto firms resemble traditional financial entities—such as exchanges and brokers—suggests these firms could be subject to the CAT’s data collection.
Crypto lobbyists argue that including blockchain firms in the CAT is unjustified and intrusive, igniting significant backlash from the community.
The National Center for Public Policy Research, a conservative group, previously sued the SEC in April, calling the CAT database unconstitutional and criticising it as "one of the greatest government-mandated mass collections of personal financial data in U.S. history."
The Blockchain Association (BA) and the DeFi Education Fund (DEF) have also joined the legal battle, filing an amicus brief in support of the lawsuit against the CAT.
BA’s Marisa Coppel and DEF’s Amanda Tuminelli have voiced concerns that the CAT could become a vast surveillance tool, storing and making accessible all blockchain transactions without requiring a warrant.
They argue that this could expose sensitive data, including transaction IDs and wallet addresses, potentially infringing on users’ privacy rights.
The op-ed by Coppel and Tuminelli highlights the potential risks, stating that the CAT could track who is buying what, when, and where—indefinitely, creating a privacy nightmare.
The opposition to the CAT extends beyond the crypto community, with Citadel Securities and the American Securities Association, along with a coalition of major banks, brokerages, hedge funds, and asset managers, also challenging the SEC.
Citadel’s competitor, Virtu Financial, has joined the lawsuit, reflecting widespread industry concern that the CAT’s scope is excessive.
Despite the backlash, the SEC remains firm in its defense of the CAT, dismissing the lawsuits as "meritless" and insisting that the database is essential for maintaining clean and fair markets.
The SEC contends that the CAT is not a tool for "snooping on Americans’ personal financial decisions" but rather a necessary measure for effective market oversight.