Something has to be done be done to crypto. In 2022, billions of dollars were lost to crypto failures and hundreds of millions more to hacks. The mess has spilled over to traditional finance, with the collapse of the two largest crypto-friendly banks: Silvergate and Signature. And all the while, new scam tokens are flooding the market.
In the US, regulators are arguing not only over what should be done, but who gets to do it, with the Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC) sparring over who has jurisdiction over crypto. Under Chairman Gary Gensler, the SEC, in particular, has gone after the industry with new intensity since the implosion of crypto exchange FTX in November, launching or threatening enforcement actions against major crypto companies, from Gemini and Genesis to Kraken and Coinbase.
But the SEC’s aggressive approach doesn’t sit well with one of the top figures. Hester Peirce, one of the SEC’s five commissioners, has formally rejected the agency’s tactics on multiple occasions. She says the SEC’s actions have been driven by what she calls “jurisdiction maximization” — launching cases to increase its mandate — but haven’t really helped the crypto sector become more compliant.
“One way to plant a flag is to enforce. It says: This is our space,” says Peirce. But by pursuing territory gains rather than creating guidance to help crypto companies color within the lines, she argues, the SEC has lost its way. “We have not done our job as a supervisor. We have not provided a path to compliance.”
Peirce has expressed multiple public dissents — most recently against a proposed change to the definition of an exchange that would expand the scope of crypto activity under SEC oversight — which she says are intended to encourage public discussion about appropriate checks and balances. balances for crypto and to heal the “dysfunctional” relationship between the industry and the regulatory body.
She describes the SEC’s current approach as a combination of “regulation by enforcement” (a term crypto’s proponents have also clung to) and “regulation by ambiguity”, keeping companies in the dark about their compliance obligations until a lawsuit is filed. their country. in tray. Peirce believes the dynamic has eroded any trace of mutual trust between the crypto industry and the SEC.
A common frustration among crypto companies, recently voiced by Coinbase and Binance, is that attempts to discuss with regulators the aspects of crypto that do not fit neatly into existing frameworks have borne little fruit. Paul Grewal, chief legal officer at Coinbase, describes the company’s more than 30 meetings with the SEC as “one-sided monologues.”
Peirce is sympathetic. One of the reasons for the dysfunction, she says, is that discussions are too often held behind closed doors on an ad hoc basis, leading to inconsistencies in understanding between different crypto companies on how to make services compliant.
“If you sit in backrooms negotiating with individual industry players, rather than having a public debate about the right approach to space regulation, it leads to all sorts of problems. The big conversations should be held in a public forum so you don’t end up with a set of rules that works for one entity but not all others,” she says. “I’m tired of seeing it done in these one-off situations, where the power dynamics are all wrong.”
