‘Regulation by Enforcement’ Won’t Work for Crypto, Argues SEC Commissioner
As the head of the Securities and Exchange Commission continues to insist that crypto tokens should largely be regulated as securities under established commission rules, other leaders of the agency are taking issue with that approach, arguing instead for a formal rule-making process to tailor new regulations for digital assets.
Commissioner Mark Uyeda called crypto regulation a “big, difficult, and complex issue.”
Courtesy of U.S. Securities and Exchange Commission
In remarks Friday at the annual SEC Speak conference, Commissioner Mark Uyeda called crypto regulation a “big, difficult, and complex issue that is conspicuously absent from the commission’s published regulatory agenda.”
Uyeda, a veteran SEC staffer who was sworn in as a commissioner in June, echoed the calls from
Coinbase
and other industry players for clearer rules of the road for a crypto sector they argue is fundamentally different from conventional securities.
“Market participants have expressed significant concerns regarding the lack of regulatory guidance in this space,” Uyeda said. “There’s widespread concern that the lack of predictability with regard to our regulations may encourage crypto firms to relocate to other jurisdictions.” A move overseas could kneecap a growing U.S. industry and send substantial asset volumes—and potential tax revenue—abroad.
Uyeda’s comments come a day after SEC Chairman Gary Gensler made a forceful case that nearly all crypto offerings are fundamentally the same as securities, and should be regulated accordingly. That stance has led the SEC to pursue numerous enforcement actions against crypto firms for unregistered securities offerings.
But Uyeda and other critics of that approach brand it “regulation by enforcement,” accusing the commission essentially of taking a shortcut by refusing to initiate the process of writing new rules for crypto, which would involve a public-comment period and a final vote of approval by the commissioners.
“To date, the commission’s views in this space have been more often expressed through enforcement action,” Uyeda said. “This is an example of a situation where regulation through enforcement does not yield the outcomes achievable through a process that involves public comment, because without the benefit of comments from crypto investors and other market participants, the commission is unable to consider their perspectives in developing an appropriate regulatory framework.”
The other Republican SEC commissioner, Hester Peirce, made a similar point in a speech in June, when she accused the commission of trying to “cobble together a regulatory framework through enforcement actions.”
“Enforcement is the appropriate tool to address the rampant fraud in the crypto space,” Peirce said. “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.”
For now, though, those are minority voices within the commission. In the conference session immediately prior to Uyeda’s address, Gurbir Grewal, the director of the SEC’s Division of Enforcement, made it clear that his staff will continue to pursue actions against crypto offerings using established securities laws.
“Nonenforcement of the most fundamental rules underlying our regulatory structure would be a betrayal of trust and that is not an option for us,” Grewal said. “When the evidence we obtain indicates that those laws have been violated, we will continue to bring actions regardless of what label is used or what technology is involved.”
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