U.S. Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce fears that failure to embrace the burgeoning crypto ecosystem could push it into the arms of more welcoming jurisdictions.
Appearing by video at the Securities Enforcement Forum in East Palo Alto, California on Thursday, Peirce – affectionately referred to as ‘Crypto Mum’ by the crypto community – voiced her concern that the SEC was stifling the industry’s growth.
Referring to a speech she gave a year ago titled “Beaches and Bitcoin”, Peirce noted that, at the time, she had been worried that the regulator would act too hastily, trying to usurp control and “lead[ing] with its enforcement powers.”
“I will admit today that I was very wrong,” she said, “Not about whether the SEC would stifle the industry’s growth—it has—but in how it would do it.”
While Peirce praised the agency for its general lack of heavy-handedness regarding enforcement actions in the crypto space, she blamed the agency’s inaction for stifling the industry:
“I worried that hasty regulation would smother the industry in its infancy. My concerns did not become reality. The enforcement actions we have taken to date in the crypto space have—for the most part—exhibited appropriate restraint. On the regulatory side, hasty is not the word I would use to describe the SEC’s pace. It is not the SEC’s overzealous action that has stifled the crypto industry, but its unwillingness to take meaningful action at all.”
Regulatory clarity desperately needed
In October 2018, the SEC announced the launch of its Strategic Hub for Innovation and Financial Technology (FinHub).
The purpose of FinHub is to provide a central point of contact for the public to engage with on all of the regulator’s fintech-related issues, including blockchain technology, digital assets, AI and machine learning, and others.
Peirce voiced her appreciation for the work that FinHub has done to date, but described the rest of the SEC’s efforts within the crypto ecosystem as a “mixed bag.”
On April 3, 2019, the SEC published its Framework for “Investment Contract” Analysis of Digital Assets, a document designed to clarify how the Howey test is applied to digital assets.
Instead, Peirce said she is concerned that it will raise more questions and concerns than it addresses.
While the Howie test itself only has four factors to consider, the framework details 38 separate considerations and their accompanying subpoints.
Speaking to the document’s complexity, Peirce noted, “a seasoned securities lawyer might be able to infer which of these considerations will likely be controlling and might, therefore, be able to provide the appropriate weight to each.”
Embrace the crypto industry or lose it
Peirce acknowledged that the SEC has taken some positive steps in an effort to provide more regulatory clarity – particularly in how the Howey test is applied to cryptocurrencies – but she stressed that its more-questions-than-answers approach to providing guidance left much to be desired.
She also cautioned her fellow regulators that the crypto industry is here to stay and that failure to embrace it and provide a clear regulatory framework could push it – and the social and economic growth that would accompany it – out of the United States and into friendlier jurisdictions.
“We should not be trying to guide innovation, but we also should recognize that we cannot stop it and embrace the potential for positive change that innovation offers. Our silence is likely to simply push this innovation and any attendant economic growth into other jurisdictions that have done their work and provided clear guidelines for the market participants to follow.”
“The U.S. securities markets have historically been the envy of the world; I do not want heel-dragging by the SEC in crypto to mar that well-deserved reputation.”