In a major development within the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has taken legal action against two prominent cryptocurrency exchanges, Binance and Coinbase, for alleged violations.

The SEC’s complaint alleges that Binance and Coinbase illegally sold securities without registering them with the agency as required under U.S. law. The lawsuit asserts that these exchanges enabled the trading of digital assets that qualify as securities, without adhering to regulatory requirements applicable to registered exchanges. While Coinbase will likely rely on its prior registration with the SEC, Binance seems to be entirely caught off guard.

The lawsuit has been in the works for some time and represents one of the most significant efforts by regulators to raise the compliance bar in the cryptocurrency space. The industry has been largely unregulated since inception, and the recent scrutiny by regulators serves as a warning to exchanges to comply with existing regulations or face the consequences.

According to a press release issued by the SEC on Monday, the regulatory agency is seeking remedies such as disgorgement, penalties, and injunctive relief against the exchanges. The complaint also cites examples of specific digital assets, including certain Binance stock tokens and Coinbase’s Lend program, which are registered securities, yet were not registered as such with the SEC before being offered for sale.

The SEC’s decision to take legal action against Binance and Coinbase underscores the urgency of the regulatory environment in the cryptocurrency industry. Exchanges must become compliant with existing regulations to avoid similar legal action, and the industry must evolve to meet regulatory and legal requirements to remain a viable option for investors and traders.