SEC Commissioner Urges to Act Proactively on Crypto

Hester Peirce

Hester Peirce, SEC Commissioner, said it’s in both investors’ and the SEC’s interest to take a more productive approach to crypto regulation.

In her remarks at “Regulatory Transparency Project Conference on Regulating the New Crypto Ecosystem: Necessary Regulation or Crippling Future Innovation”, she was quite critical of the SEC’s approach, but remained optimistic that the SEC can change course.

“Watching the SEC refuse over the past four years to engage productively with crypto users and developers has prompted feelings of disbelief at the SEC’s puzzling, out-of-character approach to regulation,” she said.

“Using the tools Congress has given us and drawing on public input, we can provide regulatory clarity, facilitate iterative experimentation, and pursue bad actors in the crypto space,” she added.

According to Peirce, it is time for the Commission to stop denying categorically spot crypto exchange-traded products.

Until this year, she said, all of the futures-based exchange-traded products that were approved fell under the 1940 Act. In April of this year, however, the Commission approved the first non-1940 Act ETP holding bitcoin futures for listing and trading on an exchange. 

The Commission still has not approved any ETP based on the spot bitcoin market.

She added that despite the success of futures-based ETP applicants over the past eight months, the Commission keeps denying spot bitcoin ETPs.

Peirce said that the Commission has tried to cobble together a regulatory framework through enforcement actions, adding that enforcement is the appropriate tool to address the rampant fraud in the crypto space. 

One-off enforcement actions that represent the first time the Commission has addressed a particular issue publicly, however, are not the right way to build a regulatory framework, according to Commissioner. 

“For that, Congress gave us other tools, including the authority to craft tailored exemptions and notice-and-comment rulemaking,” she said.

She added that enforcement actions short-cut the regulatory process, citing the recent $100m BlockFi settlement with the SEC and 32 states.

She said that BlockFi is one of a number of companies that offers crypto lending products, which were determined to be securities products. The Commission, in its settlement, set out a path pursuant to which BlockFi could register under the Securities Act and register or take steps to qualify under an Investment Company Act exemption from registration, she explained.

“The specific path laid out in settlement agreement crafted between BlockFi and the SEC, if successful, is likely to become the standard for regulation of crypto lending,” she said. 

“We might similarly consider, rather than a reactive enforcement approach, a proactive regulatory approach with respect to non-fungible tokens, stablecoins, decentralized exchanges, decentralized autonomous organizations, and other crypto innovations,” she said.

Peirce further added that “people doing things in crypto need to consider whether the laws, including the securities laws, govern their behavior”. 

For this to happen in a more efficient and comprehensive way, the Commission needs to provide a level of clarity that heretofore has been absent, she sad.

“The SEC could think through issues with people in the crypto community with an eye toward achieving our regulatory objectives pragmatically,” she said.

“By doing so, we could both facilitate good actors’ compliance and inhibit bad actors much more effectively than we do through resource-intensive and delayed enforcement actions,” she added.

Peirce mentioned that the CFTC and the SEC have worked effectively in the past in areas where their jurisdictions are closely linked.

She added that a recent rule proposal that seems to implicate crypto platforms generated a number of comments from people and organizations willing to work with the SEC on crafting an appropriate regulatory approach.

“People stand ready to work through the myriad questions and regulatory concerns around crypto. Now all we have to do is extend them a hand,” she said.